Stock Analysis & Ideas

Meta: Negative Digital Ad Trends Merit Lower Price Target, Says RBC

Wall Street’s favorite game in recent times could be called “lowering estimates,” and RBC’s Brad Erickson thinks it’s time for Meta Platforms (FB) to participate… “again.”

Following SMB (small and medium-sized business) ad agency channel checks, the signs look ominous for FB in the digital ad space. “Digital ad spend decisions remain in flux with many SMBs considering new channels away from FB for the first time and we detected no perceived improvement to FB’s targeting algo or performance,” said the 5-star analyst. “We’d expect some reversion at some point given FB’s audience size and relative scaled conversion advantage, but we see that narrative as unlikely to materialize near-term.”

50% of those surveyed – which albeit is lower than late February’s 60% – are still noticing “ongoing weakness/reductions” to advertisers’ FB spend. To Erickson this implies “downside risk” to current estimates.

It should be noted that prior to Apple’s IDFA changes, FB use to account for 100% of many SMBs’ total ad spend, which shows how the privacy changes have had a negative effect on the company.

In fact, Erickson thinks user privacy has the “potential to be a more persistent overhang.” This pertains to Apple CEO Tim Cook’s keynote at the IAPP (international association of privacy professionals) conference which stressed Apple’s commitment to “comprehensive” user privacy. With this in mind and considering FB’s heavy reliance on 3p data for ad targeting, Erickson believes “concerns of further signal loss beyond what exists today could continue weighing on the social players.”

With all the above as backdrop, Erickson has reduced both the top-and bottom-line estimates for 2022 and 2023. Now the analyst predicts 11%/15% growth and 45.7%/43.7% EBITDA margins, respectively, compared to the previous expectations of 12.6%/15% and 47.6%/46.6%.

The result of which is also a new price target, which is lowered from $245 to $240, implying shares have room for 12% growth over the 12-month timeframe. Erickson’s rating, however, stays an Outperform (i.e., Buy). (To watch Erickson’s track record, click here)

The rest of Wall Street largely buys into what the social giant has to offer. With 32 Buy ratings, 13 Holds, and just one single Sell, the stock receives a Moderate Buy consensus rating. Overall, the average price target remains a buoyant one; at $322.48, the figure suggests share appreciation of 50% in the year ahead. (See FB stock forecast on TipRanks)

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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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