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The Ratings Game: Facebook parent Meta Platforms is a ‘classic dislocated high quality stock,’ analyst says after latest earnings report

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The first-quarter results from Meta Platforms weren’t really anything to write home about, and neither was the guidance — but the stock might be too cheap.

That’s the takeaway from Mark Mahaney, analyst at Evercore ISI, as first-quarter sales lagged expectations.

Meta Platforms
FB,
-3.32%

shares rallied 17% in the premarket to $204.03. According to FactSet, the average analyst target price is $295.

The stock was down 48% year-to-date and trading on what Mahaney calls a “ridiculous” 13 times 2023 earnings per share. The company is, after all, the world’s leading social media and messaging platform.

“Yes, Facebook and all other Ad Platforms face a very large number of near-term Macro & Geo-Political risks. But at 13X P/E, that is surely way more than priced into FB shares,” said Mahaney.

Brad Erickson, an analyst at RBC Capital Markets, agreed the first-quarter results, and second-quarter outlook, wasn’t anything special. He said it was positive that Meta Platforms was revising its operating expenditure lower by $3 billion.

Justin Patterson at KeyBanc Capital Markets also took comfort from the operating expenditure decline. “We view the action and the statement together as a sign management is carefully weighing investment levels against the health of the business and macro,” he said.

Added Ronald Josey at Citi: “In many ways, we believe 1Q22 results and management’s commentary around engagement trends, monetization improvements, and balancing long-term investments with near-term results and profitability were what was needed for shares to stabilize given recent market volatility.”

Josey and other analysts were “impressed” that the Reels product accounts for 20% of time spent on Instagram, adding, “monetization should soon follow.”

What wasn’t as positive is that Meta Platforms hasn’t yet solved Apple’s
AAPL,
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privacy changes, said RBC’s Erickson. “Lower funnel targeting and measurement continue to be challenged relative to before the iOS changes,” added Citi’s Josey.

And it’s going to be a long time for its investment in the metaverse to pay off. “Maybe primarily, this is laying the groundwork for what I expect to be a very exciting 2030s when this is like — when this is sort of more established as the primary computing platform at that point,” said Meta Chairman and CEO Mark Zuckerberg on the conference call.

Need to Know: Boomers are leaving the stock market. Here’s what comes next, says this strategist.

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