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Meta Platforms stock target cut, sector perform rating on AI spend concerns

EditorNatashya Angelica
Published 10/31/2024, 10:56 PM
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META
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On Thursday, Scotiabank revised its stock price target for Meta Platforms Inc. (NASDAQ: NASDAQ:META) to $583 from the previous target of $585, while keeping a Sector Perform rating on the stock. The adjustment follows Meta's third-quarter earnings, which met consensus expectations but did not particularly impress, given the stock's 95% rise over the trailing twelve months (TTM).

The company's growing infrastructure costs due to artificial intelligence (AI) requirements and a 9% year-over-year increase in headcount were highlighted as potential concerns for future margin growth.

Meta's management has indicated significant growth in infrastructure investments continuing into 2025, with substantial capital expenditures anticipated in the fourth quarter of 2024. The company's advertising revenue growth has decelerated by approximately 300 basis points compared to the second quarter, facing a tougher year-over-year comparison.

Despite the average price per advertisement growing by 11% year-over-year, the number of ad impressions delivered slowed down roughly 300 basis points from the second quarter, with relatively flat comparables.

The report also pointed out that Meta expects operating losses in its Reality Labs division to climb substantially year-over-year, owing to ongoing product development initiatives, including Project Orion. As the company elaborates on its product roadmap, these investments are being closely watched.

In light of these factors, Scotiabank has slightly lowered its margin expectations for Meta Platforms. Consequently, the price target has been adjusted to $583, which is approximately 24 times the firm's revised fiscal year 2025 earnings per share (EPS) estimate of $24.31, down from the prior estimate of $24.36.

The new target reflects the analyst's cautious stance on the company's ability to monetize its AI investments and sustain margin growth amidst increasing expenditures.

In other recent news, Meta Platforms has been under the spotlight following a series of analyst ratings and price target revisions. Following the company's third-quarter results, Scotiabank trimmed its price target for the company from $585 to $583, citing concerns about rising infrastructure costs and a 9% year-over-year increase in headcount. On a more positive note, Meta reported a 19% year-over-year increase in revenue totaling $40.6 billion.

Meanwhile, investment firms DA Davidson and Citi have raised their price targets for Meta to $700 and $705, respectively, while maintaining their buy ratings. These adjustments come in light of the company's successful integration of generative AI, which has reportedly led to increased user engagement and better ad conversion rates. Stifel kept its price target at $663, maintaining a positive outlook on Meta's performance.

In addition to these financial developments, Meta announced a partnership with Cornerstone OnDemand Inc., aiming to leverage AI to improve immersive learning and extended reality applications in corporate settings. These recent developments underline the ongoing efforts and strategic direction of Meta Platforms in the tech industry.

InvestingPro Insights

Meta Platforms continues to show strong financial performance despite the concerns raised in Scotiabank's analysis. According to InvestingPro data, Meta's revenue for the last twelve months as of Q2 2024 stands at $149.78 billion, with an impressive revenue growth of 24.28% over the same period. This growth aligns with the company's ongoing investments in infrastructure and AI, as mentioned in the article.

InvestingPro Tips highlight that Meta "holds more cash than debt on its balance sheet" and has "liquid assets exceed short term obligations," which could provide a buffer for the increased infrastructure investments and capital expenditures expected in the coming years. Moreover, the company's "impressive gross profit margins" of 81.49% for the last twelve months as of Q2 2024 suggest that Meta has room to absorb higher costs while maintaining profitability.

While Scotiabank has slightly lowered its margin expectations, it's worth noting that Meta's operating income margin for the last twelve months as of Q2 2024 remains robust at 41.21%. This, coupled with the InvestingPro Tip that "9 analysts have revised their earnings upwards for the upcoming period," indicates that there's still confidence in Meta's financial outlook despite the challenges outlined in the article.

For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Meta Platforms, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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