Meta Stock Might Have Another Round of Weaker Earnings Ahead

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Wall Street is bracing for another rough quarter for

Facebook

-parent Meta Platforms.

Signs of broader slowing in the overall digital advertising sector—and continued fallout from

Apple
’s
(ticker: AAPL) push to limit the tracking of iPhone user activity across apps and websites—don’t bode well for the social media giant.

Analysts at both RBC Capital and Oppenheimer on Wednesday trimmed estimates for Meta’s (FB) first-quarter earnings report, due after the close on April 27. RBC analyst Brad Erickson reduced his price target on Meta to $240 from $245, but maintained an Outperform rating on the stock. He fears results will again disappoint the Street.

Meta shares on Wednesday were up 0.3% to $214.89.

The company’s fourth quarter results, reported in early February, triggered a huge selloff in Meta’s shares. First-quarter guidance was well shy of Street estimates, and the company warned that Apple’s policy changes would slice $10 billion from 2022 revenue. The stock has since lost a third of its value.

Erickson cut estimates after a round of channel checks with ad agencies serving small- and medium-size businesses increased his conviction that Meta will report “another rocky quarter,” he writes.

The analyst found no perceived improvement in the company’s ad targeting or performance.

“Digital ad spend decisions remain in flux with many SMBs considering new channels away from Facebook for the first time,” he writes. “We’d expect some reversion at some point given Facebook’s audience size and relative scaled conversion advantage …but we see that narrative as unlikely to materialize near-term.”

The RBC analyst says some advertisers have trimmed spending on Facebook, and shifted dollars to Google, TikTok, LinkedIn, and online influencers. He also notes headwinds for online advertising from more cautious spending in Europe, because of nervousness about Russia’s invasion of Ukraine. Erickson remains bullish long-term on Meta shares, but finds a turnaround in advertiser sentiment unlikely any time soon.

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Oppenheimer analyst Jason Helfstein likewise maintains his Outperform rating on Meta shares, but chopped his target price to $305 from $375. After attending a recent conference on digital media buying, he concludes that ad targeting on Facebook and Instagram hasn’t improved, and that some advertisers have shifted dollars to search and other ad platforms, he writes.

Helfstein expects near-term results to be muted by a combination of the Russia-Ukraine situation, a weaker European economy, and continued headwinds from the Apple ad situation. Meta is no longer accepting ads from Russian advertisers—1.5% of 2021 ad revenue—while a quarter of overall ad revenue comes from Europe, he notes. Helfstein trimmed his revenue estimates for Meta by 9% for both 2022 and 2023.

MKM Partners analyst Rohit Kulkarni, in a broad preview of the coming earnings season for internet stocks, warns that the entire group continues to be buffeted by a broad range of macro issues—including Russia, inflation, rising interest rates, and the continued pandemic. In particular, he worries that the war will produce lingering effects on the economy in Europe.

 “While Internet stocks have bounced back 15% since the mid-March market trough, we believe a prolonged conflict in Ukraine could spill over to the Q2 Europe outlook,” he warns. “In such a scenario, we believe the near-term outlook for companies with high exposure to Europe and European consumers is more likely at risk.”

Another concern the analyst highlights is the potential impact of higher interest rates on ad spend by companies in rate-sensitive segments like autos and real estate. His advice: Stick to stocks with low European exposure, minimal reliance on the global supply chain, historically high gross margins, and low impact from higher interest rates. In particular, he calls out the ride-sharing company

Lyft

(LYFT) and social media play Snap (SNAP) as fitting that description, along with U.S.-based ad tech companies like

Pubmatic

(PUBM) and

Integral Ad Science

(IAS).

Write to Eric J. Savitz at [email protected]