Meta downgraded by Needham due to slowing revenue and TikTok competition – The Hollywood Reporter
Analysts at Needham downgraded Meta on Monday, urging investors to sell the stock and use the proceeds to buy more attractive opportunities.
Downgrading Meta, which owns Facebook, Messenger, Instagram and WhatsApp, for underperforming, analysts pointed to rising costs as the company continues to invest in the Metaverse, as well as slowing revenue growth. Material revenue from the Metaverse is not expected to be realized until 2030.
And Meta faces the existential threat of competition from social media platforms such as TikTok.
“Whether Meta wins against TikTok or not, we think is [return on invested capital] will be regularly attacked by competitors until the day when Meta does not win. The structural valuation problem, as we see it, is that Meta does not own its content or distribution,” the note reads.
Meta a guided down on its revenue projections, as the company shifts users to Reels, rather than News Feed and Stories, which monetize at higher rates. The switch to reels is intended to help Meta reclaim TikTok users. However, analysts at Needham ask, “Why isn’t the monetization of the old business enough?” Is the old case now irrelevant? »
Additionally, Meta said that an apple privacy change made to its iOS functionality will reduce the company’s sales by about $10 billion this year.
As consumers turn more to video, analysts say Meta has lost “the battle for attention on mobile devices” not only to TikTok, but also to video games and YouTube.
Additionally, Meta faces the same economic headwinds that pressure all advertising-focused companies, as well as increasing regulatory pressures, which may mean Meta would not be able to make future acquisitions like WhatsApp. and Instagram and would instead have to create its own products, which would be a more expensive endeavor for the company.
“There is no need to be in Meta today if its current investments will pay off in 2030, as we see…and if the world changes during that time, they may never pay off,” indicates the report.