Morgan Stanley trims Meta target, expecting Reels monetization headwinds
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Morgan Stanley has trimmed its price target on Facebook parent Meta Platforms (FB
+1.1%), pointing to some expectations of headwinds as the company presses to monetize its TikTok-rival video feature Reels.
A bottom-up analysis looking at Reels user adoption prompted analyst Brian Nowak and team to cut Meta's revenue expectations by 5% in 2022, and 4% in 2023 - along with cuts to expected EBITDA of 10% and 15% respectively.
The firm expects adoption of Reels to grow from 6% of time spent now to about 15% in the fourth quarter of 2023.
"While FBâs â22 IDFA headwinds are top of investors' minds (FB sized them to be ~$10bn) in our view, the accelerating shift toward Reels (across Instagram and core Facebook) is a larger near-term uncertainty," Morgan Stanley says.
It expects Reels advertising to take a slower ramp than adoption, though, as it sees Meta prioritizing engagement over monetization. "As such, we expect a lower ad load for now, and look to see advertiser adoption and auction market pricing needing time to ramp."
TikTok's (BDNCE) materially lower monetization rate could be a factor in how fast Meta pushes Reels ads as well. "So while we expect ads to come to Reels (FB needs them for its business and to attract creators) our base model assumes Reels monetize at a ~45%/35% lower rate in 4Q '23 than core Facebook/Instagram."
The firm has cut its price target to $325 from $360, still implying 58% upside ahead.
Meta and Facebook have been among social-media names in a skirmish with Russia over the conflict in Ukraine.