Stock Analysis & Ideas

J.P. Morgan Changes Course on Meta Stock

To say Meta (META) is going through a bit of a rough patch would be a bit of an understatement.

The headwinds have been piling up from all directions. J.P. Morgan’s Doug Anmuth counts Apple privacy changes, competition fromTikTok, Reels “headwinds,” ample hiring & expense growth, uncertainty regarding the metaverse endevours and macro pressures as reasons behind the stock’s downfall. And “downfall” is no exaggeration; the shares have lost 64% of their value over the course of the year.

That said, with 2023 at the gate, not only does Anmuth think some of these issues will “ease,” but he also believes the company is showing “encouraging signs of increasing cost discipline.” And more of that is on the way, says Anmuth.

So, what are the examples of cost discipline? Well, after going on a bit of a hiring spree, the company is now getting rid of 11,000 employees – roughly 13% of the workforce – while also lengthening the hiring freeze until the end of 1Q23.

“Management indicated that the company’s initial guidance for 2023 expenses already embedded the headcount reduction,” notes the analyst, “with the $2B improvement at the low end attributable to extension of the hiring freeze.”

Capex wise, investments were at $15 billion in 2020 but have more than doubled to an estimated $32.5 billion this year, while next year’s capex guide implies a 9% uptick at the midpoint. However, Anmuth thinks 2023 will amount to a “near-term peak” in capex, and he forecasts a 9% drop in 2024.

The other headwinds noted above should abate too, i.e., the year-over-year impact of Apple-driven “signal loss” should ease, and the company will lap the “heaviest TikTok pressures” whilst Reels monetization should ramp to become “at least neutral” to revenue in 2H23.

Add into the mix a valuation Anmuth now thinks is “compelling,” and the analyst sees reason enough to upgrade META’s rating from Neutral to Overweight (i.e., Buy). The price target also gets a boost and is bumped from $115 to $150. What does this all mean for investors? Upside potential of 31% from current levels. (To watch Anmuth’s track record, click here)

Over the past 3 months, 38 analysts have reviewed Meta’s prospects, with the ratings breaking down to 27 Buys, 8 Holds and 3 Sells, all culminating in a Moderate Buy consensus rating. The forecast calls for one-year gains of 29.5%, considering the average price target clocks in at $148.26. (See Meta stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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