Meta’s ‘darkest days’ are ahead, but some analysts say ad sales are still on track

Then there is the threat of TikTok, a favorite among the under-30 crowd that is gobbling up market share at the expense of Meta, Alphabet Inc.’s
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Google, Snap Inc.
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and Twitter Inc. TikTok’s digital ad revenue is forecast to soar to $36 billion by 2027 from $10 billion in 2022, lifting its share of the global market to 5.4% in 2027 from 2.3% last year, according to Wall Street firm Cowen.

Read more: TikTok’s digital ad market share is growing. How will Google and Facebook react?

“In 2023, we expect Meta to remain engulfed in arduous battles inside the Octagon. In the long run, we believe Meta will benefit from the secular digital ad trend and innovate in the metaverse; however, regulatory scrutiny persists, internal headwinds remain, and we believe the darkest days of this downturn are ahead of us,” Monness Crespi Hardt analyst Brian White warned in a note Thursday. 

And yet appearances can sometimes be deceptive: Several analysts see an upside to Facebook, which remains a powerhouse in the digital-advertising world despite the TikTok menace — Facebook’s ad sales will reach $115.9 billion in 2027 even though its worldwide market share will have dropped to 17.6%, according to Cowen.

Indeed, analysts like Mizuho Securities’ James Lee remain positive in their outlooks, based on movement by Facebook users to short-form videos on Reels and improved ad-targeting as the company recovers from privacy changes imposed by rival Apple Inc.
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“Our ad checks with leading agencies show” Meta’s revenue “appears on-track, especially based on seasonality analysis that shows a high correlation over the past few quarters,” Lee said in a note to investors on Thursday that maintains a buy rating with a price target of $170.

Lee believes Meta’s first-quarter revenue guidance appears to “be intact.”

“While topline concerns linger, we find ourselves more open to the idea that ’23 [operating expenses] and [capital expenses] come in below expectations, boosting EPS and [free cash flow] forecasts,” Piper Sandler analyst Thomas Champion said in a note Thursday.

Analysts polled by FactSet expect Meta to post fourth-quarter revenue of $31.54 billion on earnings of $2.26 a share. They anticipate first-quarter sales of $27.1 billion on earnings of $1.53 a share.

In the same quarter a year ago, Meta reported $33.67 billion in revenue, and earnings of $10.3 billion, or $3.67 a share.

Meta’s results come amid a swirl of controversy that continues to dog the company.

This month, venture capitalist Jim Breyer groused to CNBC that Meta is “going to be under a lot of pressure” over the next 12 months as it grapples with escalating costs associated with its slow rollout of metaverse. He does, however, foresee a “big rebound” in Meta’s stock over the next 24 months is possible.

Meanwhile, the return of former President Donald Trump to the Facebook platform after a two-year ban underscores the desire of Meta to juice traffic and ad revenue while currying favor with the Republican party before the 2024 elections, Jim Steyer, CEO of Common Sense Media, told MarketWatch.

“This decision is absolutely revenue related,” Steyer said in a phone interview late Thursday. “That seems so clear, and it is also reflective of their long-term political strategy.”

“This is another inconsistent and unconscionable decision by Meta/Facebook,” Steyer added. “It once again demonstrates that they ultimately put profits over supporting fundamental democratic norms and institutions, not to mention the best interests of our citizenry.” 

Meta shares have plunged 50% over the past 12 months, while the broader S&P 500 index
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has tumbled 8% the last year.