Meta slips as Needham downgrades over 'deteriorating' fundamentals, structural risks
Justin Sullivan


Meta Platforms (NASDAQ:META) shares slipped on Monday as investment firm Needham downgraded the tech giant, noting concerns over "deteriorating" fundamentals and structural risks to its valuation.
Analyst Laura Martin lowered her rating to underperform from hold, noting that Meta (META) is investing heavily in the metaverse while dealing with slower revenue growth. 
"We lower our estimates because we believe cost growth will far exceed revenue growth for the next 2 years," Martin wrote in a note to clients. 
In addition, Martin also pointed out there are concerns over shifting consumer behavior, increased competition, a degradation of the company's moat, as well as regulatory risks and Metaverse investment risks. 
Meta Platforms (META) shares fell almost 2.5% to $166.88 in premarket trading. 
Looking deeper, Martin noted that Reels monetizes at a lower rate than Newsfeed and Stories, yet the company is pushing users towards this feature. Apple's (AAPL) privacy initiatives have also increasingly become a structural headwind for Meta Platforms (META). 
ByteDance's (BDNCE) TikTok is also increasingly seen as a threat to Meta and Martin wondered what happens if consumers don't leave TikTok to come back to Meta's platforms, including Facebook and Instagram. Additionally, competition is seemingly never ending, with other social networks, including Snap (SNAP), fighting for consumer attention. 
Martin lowered her earnings per share and EBITDA estimates for 2022 and 2023 as a result and noted that "investors should remain on the sidelines while they assess several long-term valuation risks." 
On Friday, research firm Tigress Financial Partners said Meta Platforms (META) was well positioned to lead the "ongoing evolution" into the metaverse and was optimistic it can keep growing users, revenue and cash flow. 

Analysts have been positive on Meta Platforms (META). It had an average rating of BUY from Wall Street analysts, while Seeking Alpha authors are less positive on it but still rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates META a HOLD.