Meta reaffirmed with Buy at BofA after potential ad-free subscription service for EU users
Derick Hudson
BofA Securities reiterated its Buy rating on Meta Platforms (NASDAQ:META) with a $375 price target following media reports that the company proposed a plan to EU regulators to introduce ad-free subscription plans for Instagram and Facebook users in Europe.
The tech giant intends to offer free version for those who consent to the use of personal information for ads, or a paid ad-free version of Instagram and Facebook to EU users.
Meta, reportedly, intends to charge â¬10/month (~$10.5) on desktop for Facebook or Instagram account and about â¬6/month for each additional linked account. On mobile devices, the price could jump to about â¬13/month (~$13.6), factoring in the commission charged by app stores.
BofA analysts said that, while still in proposal stage, they think â¬156/year (~$163) subscription option is a high price and expect that (if only two choices are offered under current proposal) the vast majority of users will opt for the free version.
For reference, as of Q2'23, Meta had 409M European users and generated TTM (Trailing 12 months) advertising ARPU (average revenue per user) of $64/year. The analysts added that they would expect some pushback from European regulators on the cost of the subscription fee, and/or potential segmentation of users into only two categories, paid and unpaid with use of personal data.
The tech giant's proposal follows a July ruling by Court of Justice of the European Union (CJEU) which required the company to get user consent for personal data access. The court also noted that the companies should explore subscription models for users. The analysts noted that Meta's decision could also have been influenced by the upcoming Digital Markets Act (DMA), which is expected to come into effect in March 2024.
DMA imposes new legal obligations on companies on collecting and using personal data for advertising purposes and requires some data sharing with competitors or third parties to advance fair competition.
While the proposal seems to be in early stages, and the analysts anticipate some regulatory pushback, Meta is, in a way placing a price on its services in Europe, which do have a cost to provide.
The analysts noted that Meta is not the only one in the subscription evolution, as per media reports, TikTok, a unit of Chinese company ByteDance (BDNCE), is also testing an ad-free version, priced at $4.99/month in one English speaking market outside the US. Last year, Snap (SNAP) also unveiled a paid subscription service called Snapchat+, which has grown to 5M subscribers. Reportedly, X, formerly known as Twitter, is thinking of a subscription model for all users.
If Meta's proposal is permitted â and users have a free version with data use, and paid version with no data (which monetizes even better) â it could be positive for the company.
However, the analysts expect European regulators to push back on Meta's current proposal.
BofA remains positive on the stock due to multiple levers, which include ramping Reels and messaging monetization, growing AI capabilities, potential new subscription offering, to offset potential EPS pressure in Europe.
Meta has a Strong Buy rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, Seeking Alpha authors' average rating is Buy and the average Wall Street analysts' rating is Strong Buy.

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