By
Bhushan Akolkar
April 25th, 2024
According to the Bank of America, Meta could bend to advertising spending pressure in the coming year, and this would result in cutting budgets.
American multinational investment bank the Bank of America (NYSE: BAC) has downgraded Facebook’s parent company Meta (NASDAQ: META) from “buy” to “neutral.” Also, the financial institution cut the company’s price target on the stock from $196 to $150. Meta is up 0.6% to $129.80 in extended trading hours at press time. The technology company lost about 4% in early trading Monday and closed at a loss of 0.22%. Facebook’s parent company has been amassing losses over the past year and has triggered concerns among investors. The company has lost almost 59% over the past year and 61.43% since the year began. In the last three months, Meta has shed more than 18% and plunged by an additional 3.48% over the past month. In the last five days, META has declined 2.32%.
Bank of America Downgrades Meta
According to the Bank of America, Meta could bend to advertising spending pressure in the coming year, and this would result in cutting budgets. The bank’s analyst Justin Post noted his concerns about Meta’s effort on Reels. The company has been intentional about making Facebook and Instagram users watch Reels. Post said he has a “more cautious” stance on the move. He wrote in a statement:
“So far, Reels content does not appear to be materially incremental for total time spent on Instagram (IG) and Facebook (FB) and, like Snap, social content time in stories and feed could be down high-single digits. The shift in usage on FB/IG is a potential negative for gross margins and long-term competition.”
The Bank of America analyst added that Meta may be unable to “keep up with peers on eventual market recovery on business model shifts (Reels and Metaverse).”
Furthermore, there are concerns about Meta’s investment in the metaverse. The company changed its name to Meta about a year ago and has started exploring the space since then. However, BofA believes that Meta’s investment into the metaverse will likely remain an “overhang” on the stock. The investment bank also referred to Earnings Per Share (EPS), that analysts may be “less likely to back out Metaverse spends from EPS for violation purposes given lack of apparent progress with (or reported metrics on) users, potential new Apple competition, and a higher cost-of-capital mindset.”
Meanwhile, the Wall Street Journal reported that Meta’s flagship virtual world was struggling to gain traction. The company has initially projected 500,000 monthly active users by year-end. However, obtained documents showed that the tech giant had slashed the aim in about half. In Q2, Meta announced a revenue decline for the first time since its public debut. The company’s profits for the period also came in lower than expectations.