BofA Downgrades Meta Platforms: 'Advertising Spend Pressure Likely To Increase'

With Meta Platforms Inc META earnings coming on Wednesday, one Wall Street analyst downgraded the beaten-down stock on Monday and said investors should expect some disappointing advertising numbers in coming quarters.

The Analyst: Bank of America analyst Justin Post downgraded Meta Platforms from Buy to Neutral and cut his price target from $196 to $150.

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The Thesis: In the downgrade note, Post said third-quarter ad spend numbers from social media competitor Snap Inc SNAP suggest third-quarter ad spending was likely stable, but Post anticipates a significant slowdown in ad spending in the third quarter and into 2023 as advertisers reduce their budgets.

As a result, Post projects Meta's revenue will fall 1.8% overall in 2022 and grow just 3.8% in 2023.

In addition to ad spending headwinds, Post said he has become more cautious on Meta's content shift on Facebook and Instagram to Reels given Snap's declining content consumption trends.

"With total FB/IG y/y time spent was stable to slightly down per SensorTower in 3Q, Reels usage ramp is not proving to be incremental, and time spent is likely down on more valuable social content, in our view," Post said.

Related Link: S&P 500 Rebounds From 2022 Lows This Week As Big Tech Earnings Loom Large

For Wednesday's third-quarter report, Post is anticipating Meta will report an earnings beat and revenue in-line with expectations. Unfortunately, Post is projecting revenue will drop 7% year-over-year in the fourth quarter, below consensus analyst estimates of a 3% decline.

Benzinga's Take: Meta shares dropped just 1.1% in early Monday trading, a potential sign for traders that all the bad news may be nearly priced into Meta shares at this point, with the stock now down more than 62% year-to-date. While Meta may be struggling to maintain its growth, the company still generated an impressive $6.7 billion in net income last quarter.

Photo: Courtesy of Anthony Quintano on flickr