- Needham analyst Laura Martin reiterated Underperform rating on the shares of Meta Platforms Inc META.
- The analyst is worried that the company’s Free Cash Flow (FCF) and EPS under delivery are related to higher spending in the Metaverse.
- Martin also said weak ad revenue due to the slowing economy and TikTok’s popularity may have also contributed to the slow performance.
- The analyst wondered if META had a core business once a competitor (like TikTok) steals away key content creators who aggregate younger demos and millions of viewing hours and ad units.
- The company talks about the returns on its Metaverse investments in terms of 2030, well beyond most investors’ time frames. The analyst opined that there is no need to be in META today if its spending will only pay off in 2030.
- Also Read: Meta Loses Crucial Metaverse Pioneer Over Creative Disagreement With Mark Zuckerberg
- Also, if the world changes before 2030, today’s investments may never pay off, added the analyst.
- It is possible that META’s enormous spending to create the Metaverse suggests it fears existential risks to its historical collection of businesses.
- Apple’s deprecation of IDFA destroyed META’s best-in-class feedback loops on iOS devices, and today RMNs (retail media networks) have better closed-loop attribution, which undermines META’s pricing power, said the analyst.
- Investors should remain on the sidelines while they assess several long-term valuation risks to the META story, including competition, consumer behavior shifts, and META’s difficulty in controlling its content or its distribution.
- Martin estimates that Metaverse investments, called Reality Labs in Meta’s P&L, will lose over $20 billion in 2022, up from $10 billion in 2021.
- The analyst lowers FY23 estimated revenue to $118.9 billion, OIBDA of $47.6 billion, and EPS, Adjusted of $7.57.
- Price Action: META shares are trading lower by 0.03% at $117.09 on the last check Friday.
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