Meta Platforms Is Wall Street's Top Internet Pick, Analysts Laud AI Investments and Advertising Strength

Several Wall Street analysts hailed Meta Platforms Inc META as their top internet pick.

The analysts included Baird’s Colin Sebastian, JMP’s Andrew Boone, Truist’s Youssef Squali, and KeyBanc’s Justin Patterson.

Patterson highlighted that CEO Mark Zuckerberg’s comments reinforced that Meta is hyper-focused on AI and has been investing considerably behind this effort (Nvidia Corp NVDA H100 GPUs alone represent a ~$9 billion investment). 

In contrast to industry feedback from Meta’s metaverse strategy in 2021, he was encouraged by how the AI community has supported Meta. 

Patterson expects AI to play a key part in Meta’s fourth-quarter earnings call (February 1, after market close) and will look for more updates on how Zuckerberg thinks about AI investments and products (both in Meta’s Family of Apps and in computing devices).

Boone chose Meta Platforms as his top pick in his advertising coverage universe. With a healthy advertising environment, AI-powered tools ramping, and Instagram engagement still benefiting from Reels, he expects Meta to report strong fourth-quarter results with strength in the first quarter of FY24. 

With catalysts ahead, including AI Sandbox, Messaging, and the potential to move FRL resources to AI, Meta continues to be his top pick, as he noted an upside to his estimates.

Boone projected a fourth-quarter revenue and EPS of $39.67 billion (vs. consensus of $39.04 billion) and $5.13 (vs. consensus of $4.99).

Sebastian’s post-holiday survey results indicate healthy increases in usage and engagement on short-form video applications (i.e., TikTok and Instagram) and an ongoing shift towards social commerce, which may also portend more competition for traditional search. 

Surveys also suggest healthy and positive spending intent among advertisers for 2024, mainly social media, video, and search. However, he noted that performance-based ads are generally reactive to the consumer and macro environment. 

The analyst noted the survey as most favorable for META within his coverage.

Squali flagged that DoubleVerify (DV) has officially rolled out its Brand Safety and Suitability tools on Facebook and Instagram’s Feeds and Reels. 

Previously, only DV’s viewability and fraud products were allowed to be used by Meta’s Feed + Reels advertisers. 

Still, he noted that this is a significant development given the additional inventory that will be unlocked for DV, creating another vital revenue opportunity by driving new client wins and cross-sells across its existing client base. 

The analyst noted that DV first partnered with Meta in 2017 with fraud and viewability solutions before expanding to safety and suitability products in 2019 for in-stream video inventory (ads shown before, during, or after a video). 

Now, these tools will roll out on Feed and Reels, the two highest consumer engagement platforms, and are more critical as out-stream ads appear next to user-generated content.

META stock gained 180% last year, outperforming the broader indexes Invesco QQQ Trust, Series 1 QQQ and SPDR S&P 500 SPY.

Price Action: META shares traded higher by 1.47% at $381.68 on the last check Friday.

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