Meta's story more complicated than simplistic bearish takes - Nathanson
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It's one of Meta Platforms' (FB
-1.1%) calmer days in the past couple of weeks, but with the overall market lower it's tracking toward its ninth losing session of the past 11 - all following up an earnings shocker that brought on the biggest-ever equity wipeout.
Today bears are getting a rebuttal from MoffettNathanson, which reiterates its Buy rating and addresses key questions it's received about the outlook (and suggesting the truth is more complicated than the bearish view of existential threats for the company).
First and foremost among questions is how to quantify the exact impact of Apple iOS privacy changes, which Meta warned could bring $10 billion in revenue headwinds this year.
The impact was already in the fourth-quarter base, Michael Nathanson notes - ad growth on a two-year stack fell 900 basis points in Q3 and another 600 bps in Q4 - and as for Facebook's $10 billion warning, "We believe that this is a total revenue impact in 2022, not an incremental impact from 2021." That means more of a $6 billion-$7 billion incremental step-up from 2021 impact.
The Apple impact explains only half of the weak 2022 guidance, the firm says - the other half comes from "a mix of Reels monetization, TikTok competition and broader macroeconomic challenges."
Reels makes up the other major contributor, though - and Facebook confirmed it was continuing to promote Reels (which is not monetized) at the expense of otherwise highly monetized News Feed content. That's going to weigh on revenue in the short term, but "we are encouraged by Facebookâs success with Stories and believe they have a playbook and will be successful in monetizing Reels as well," Nathanson says - even if TikTok (BDNCE) is a bigger Reels competitor than Snapchat was for Facebook's Stories.
As for TikTok, it's not having a notable impact on Meta's ad revenues just yet, but it has the ability to build an effective direct response business in time, and in the meantime can impact industry ads by flooding the market with low-cost impressions, Nathanson says.
On concerns about hefty "metaverse" spending - now helpfully broken out in the company's Reality Labs segment - even including losses in that segment, the company is trading at a discounted market multiple (MoffettNathanson doesn't assign value to the business, valuing the company only on the core Family of Apps business).
Based on a 17x multiple of 2023 EPS excluding cash, the firm is maintaining an above-average target price of $380, implying 77% upside.
On Wednesday, Meta made a notable move, insulating CEO Mark Zuckerberg and COO Sheryl Sandberg from some decision-making and elevating Nick Clegg to a key role overseeing the company's public policy.