Shares of Meta Platforms (NASDAQ: META), formerly Facebook, have plunged 49.5% so far this year, including nearly 13% over the past month. Macro headwinds have triggered a broader sell-off, with the impact being more severe on tech stocks. Investors are concerned about a further decline in the stock due to the continued slowdown in ad spending amid a potential recession and the impact of growing competition on Meta.
Meta Faces Challenging Times
After witnessing stellar growth rates due to pandemic tailwinds, Meta’s growth rate has slowed down over recent quarters. Meta’s revenue growth was 7% in the first quarter of 2022, compared to 20% in the fourth quarter of 2021. Further, the company expects second-quarter revenue in the range of $28 billion to $30 billion, compared to $29.1 billion in the prior-year quarter, implying a possible decline.
Meta’s top-line growth has been hit by Apple’s (AAPL) privacy policy changes, which have impacted its ability to target advertisements effectively. Also, growing rivalry from apps like TikTok is hurting growth.
Meta is focusing on its short video product, Reels, to fight TikTok. While Reels is witnessing strong growth, it is a drag on Meta’s revenue over the near term as Reels’ monetization is lower than Feed or Stories. However, Meta expects Reels’ monetization to improve over time.
Recently, Meta’s CEO Mark Zuckerberg warned its employees of a severe economic downturn. The company has now reduced its hiring target for 2022 to about 6,000-7,000 engineers, down from its initial plan to hire 10,000 engineers.
Wall Street’s Take
Barclays analyst Ross Sandler cut the price target for Meta stock to $280 from $370 but maintained a Buy rating.
Sandler believes that a “perfect storm” is here given the slowdown in ad spending and conversions across the whole internet ecosystem in the second quarter. He also highlighted an “ascending trajectory” from new challengers like TikTok and Apple, and tough year-over-year comparisons.
Sandler feels that a “cocktail of events is likely to generate the lowest growth rates for the sector in years.” That said, Sandler pointed out that stock valuations have already priced in some of these concerns.
Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 28 Buys, eight Holds, and one Sell. The average Meta Platforms price target of $264.86 implies 56.01% from current levels.
Conclusion
Meta Platforms is under pressure due to macro headwinds and certain company-specific challenges. Given the near-term pressures, Wall Street analysts are treading carefully with regard to Meta, though they continue to be optimistic about long-term growth opportunities.
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