Atlantic Cuts Meta Platforms to Neutral, Doesn’t Expect Shares to Re-Rate Higher

By Senad Karaahmetovic 

Atlantic Equities analysts downgraded Meta Platforms (NASDAQ:) shares to Neutral from Overweight with a new price target of $160 per share.

The analysts believe Meta’s growth is “increasingly challenged” amid mounting macro headwinds. Moreover, rising competition for advertising dollars and easing secular tailwinds in digital advertising are further complicating the macro environment for Meta Platforms.

“Admittedly, cost reductions will likely partly offset the anticipated softer topline, but given high decremental margins and, in our view, greater challenges reducing costs than anticipated, we see ongoing downside risk to earnings,” the analysts said in a client note.

When it comes to competition, TikTok is seen as the biggest competitor with the Atlantic analysts estimating that the Chinese social media giant “already had roughly a quarter of combined Facebook/Instagram engagement in 2021, but just a thirtieth of the monetisation, illustrating the potential threat.”

“We do anticipate Meta’s share losses to moderate slightly as Reels monetisation ramps and IDFA-related headwinds are anniversaried. However, assuming ~350bp of market share losses across FY22-FY24 compared to ~500bp across FY20-FY22 still results in FY23/FY24 ad revs of $121.0bn/ $130.9bn vs $125.8bn/$140.3bn consensus,” the analysts added.

Finally, the analysts also do not expect to see a re-rating in Meta shares amid slowing secular tailwinds, ongoing market share losses, and further margin pressure.

Meta shares are down nearly 2% in pre-open Tuesday.

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