2023 An 'Investment Year' For Meta Platforms: Why These 6 Analysts Are Lowering Price Targets After Q3 Earnings

Zinger Key Points
  • Analysts are lowering their price targets for Meta Platforms due to increased spending in 2023.
  • Several analysts are quick to point out the company's strong user base and monetization efforts aside from metaverse plans.

Analysts are lowering their price targets on Meta Platforms META after the company reported third-quarter financial results Wednesday.

Here’s what analysts are saying about the company’s growth and high spending on the metaverse sector.

The Meta Platforms Analysts: Goldman Sachs analyst Eric Sheridan has a Buy rating on Meta and lowered the price target from $200 to $165 price target.

Morgan Stanley analyst Brian Nowak downgraded Meta from Overweight to Equal-weight and lowered the price target from $205 to $105. 

Rosenblatt analyst Barton Crockett has a Neutral rating and lowered the price target from $154 to $114.

Raymond James analyst Aaron Kessler has an Outperform rating and lowered the price target from $215 to $171.

Mizuho analyst James Lee has a Buy rating and lowered the price target from $180 to $160.

JMP Securities analyst Andrew Boone has a Market Outperform rating and lowered the price target from $215 to $150.

Related Link: After Apple And Snap, Microsoft Gaming CEO Swips At Zuckerberg's Metaverse: 'Poorly Built Video Game' 

The Meta Takeaways: Sheridan said the report from Meta Platforms was a “two-sided story.”

“On one hand, FX-neutral ad revenue was better than feared…Taken alone, the narrative around advertising trends would have left investors with an upside surprise relative to both expectations and recent earnings reports,” Sheridan said.

“On the other hand, opex/capex in 2022 remains elevated.”

Sheridan points to high spending by the company, which puts pressure on profitability and free cash flow in 2023.

“Valuation approaches now likely makes META a ‘show me story’ for investors on a 12-18 month view.”

Morgan Stanley's Nowak dropped his bullish stance on Meta stock after the earnings print. 

Meta's $69 billion of capital expenditures over two years and AI-driven data center build point to "structurally higher capital intensity," the analyst said in a downgrade note. 

"While these investments could make META stronger over 5 years, we see '23 FCF heading 60% lower and higher risk to prove ROIC and incremental growth."

With many technology companies citing macro issues hurting business, Meta Platforms CEO Mark Zuckerberg wasn’t alone with call-outs during the earnings release and earnings call. Crockett noted that Zuckerberg was more cautionary than other technology CEOs.

One positive for Crockett was Meta reaching 3.7 billion people globally across its services on a monthly basis, which is half the world’s population. Crockett remains unconvinced of Meta’s aspirations in the metaverse sector.

“Metaverse not persuasive. Zuckerberg expounds on an immersive vision. But we see a heavy emphasis on what Zuckerberg believes consumers will want, and a paucity of confirming external data,” Crockett said.

Kessler said Meta Platforms will see more of an investment cycle for 2023 with the higher costs it guided for Wednesday. The analyst also singles out the Reality Labs division as a negative from the company’s earnings report.

“Reality Labs losses continue to expand, which we do not believe sits well with investors given its unproven business model,” Kessler said.

Lee said estimates from the company for the fourth quarter came in below expectations. The analyst maintains a Buy rating but lowered the price target due to the short-term outlook.

“Although we are constructive long-term, we believe stock could remain volatile near-term until completion of a negative revision cycle and opex growth optimizes to revenue growth,” Lee said.

The analyst points to user metrics being a positive in the third quarter with daily active users stable and more time spent using Reels by users.

“Ad impressions growth per DAU, a proxy for engagement, improved 2 points to 14% year-over-year, indicating the company is doing a better job defending its share against TikTok relative to peers.”

Boone said 2023 will be “another investment year” for Meta Platforms with higher spending on artificial intelligence and the metaverse.

Boone said there are risks with Meta Platform spending heavily on new ventures, along with tough macro conditions and privacy headwinds.

“With shares down 70%+ from the 52-week high, we believe these risks are more than priced in as Meta trades at 5.3x Family of Apps operating income without any considering for FRL (Facebook Reality Labs),” Boone said.

The analyst said a price target of $150 and an Outperform rating is justified with Meta’s highly engaged user base and “best-in-class digital advertising.”

META Price Action: Meta shares were down 22.81% at $100.21 midday Thursday.

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