Stock Analysis & Ideas

Meta Stock: Looking Ripe for the Picking

Of all FAANG stocks, Meta (NASDAQ:META) had the most depressing 2022, with the shares contracting by 65% over the course of the year. The downturn was driven by several headwinds including softness in the broader ad market, the ongoing rise of rival TikTok, exposure to IDFA and the continued losses as a result of chasing its metaverse ambitions.

Yet, ahead of the social media giant’s Q4 results today, Deutsche Bank analyst Benjamin Black thinks 2023 will be more rewarding.

According to Black’s recent survey work, TikTok engagement share gains have now “peaked,” and via AI investments and increasing on-platform activities, “lost IDFA signal continues to be regained.”

And going by the recent workforce reductions, Meta appears to be taking a more prudent approach to investments. “Thus,” says Black, “we would expect that the discount that investors have been putting on META shares over much of the last year should continue to decline in 2023.”

Against this backdrop, between FY22 and FY30, Black is looking for revenue CAGR (compound annual growth rate) of ~8%. Considering the digital ad market should grow at a “meaningful premium” to the overall global ad market, he believes this is an “achievable bar.”

Margin-wise, going forward, the company’s growing discipline in handling operating expenses and capex spend, while targeting investments “related to recouping signal losses and driving engagement,” should provide a strong basis for margin expansion. As such, between FY22 and FY30, Black sees EBITDA margins expanding by 600bps from ~44% to ~50%.

It all amounts to a positive assessment of Meta’s prospects, especially considering the lowered expectations. “Given this undemanding underlying valuation setup, more benign interest rate sensitivity relative to many in our coverage, and the lowest bar in terms of 2023 revenue growth expectations across our digital advertising coverage,” Black summed up, “META remains our favorite name across our digital advertising coverage.”

The risk/reward, therefore, “remains compelling,” and Black reiterates a Buy rating on Meta shares along with a $170 price target. (To watch Black’s track record, click here)

Most on Wall Street agree. With an additional 19 Buys vs. 5 Holds and 1 Sell, the analyst consensus rates the stock a Moderate Buy. (See Meta stock forecast)

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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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