By Sam Boughedda
A Morgan Stanley analyst cut the firm's price target on Meta Platforms (NASDAQ:META) to $225 from $280 per share, maintaining an Overweight rating on the stock.
In a research note, the analyst said the tech giant is experiencing falling total engagement and rising lower-monetizing Reels use, creating larger revenue headwinds.
"We see META's declining US time spent trends and shift toward still-lower monetizing Reels engagement being larger near-term headwinds to revenue growth," said the analyst. "We are also updating our model for expected Reels monetization (modeled to reach ~$5.4bn of Reels revenue in '23)...but that base case pace is not fast enough as our overall META ad impression, pricing and revenue estimates fall. Lower revenue flows through to EBITDA more significantly (as we still model META GAAP opex to grow ~12% in' 23) and '23 EBITDA/EBIT fall by ~21%/32%."
However, while Morgan Stanley believes Meta faces execution uncertainty, they also think it is more than reflected in the price at current levels.
"Looking at valuation on a growth and profit adjusted basis, our $225 PT implies a 0.7x ratio, a 20% discount to the peer group. From a fundamental perspective, first, we believe META's unique reach/first party data and ability to monetize engagement (including Reels) will lead to significant FCF. Second, as discussed below Reels ad revenue could scale significantly faster than expected. Third, we also believe META's current AI-driven infrastructure rebuild (to better analyze/use their first party data in '23 and beyond) is likely to lead to faster engagement and ad revenue growth...and create potentially a deeper moat (given the large audience and high capex build required)," explained the analyst.
Meta shares are down more than 3% Friday.