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Meta: Fools Rushed In - Time To Cut

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Kevin Dietsch

Meta Platforms, Inc. (NASDAQ:META) stock's unthinkable resurgence from its November 2022 has stalled. Investors who chased its post-earnings surge apt sewage attracted to nan media's headlines articulating CEO Mark Zuckerberg and his team's "year of efficiency."

However, investors must see that Meta Platforms will not apt beryllium a maturation banal moving guardant pinch its Family of Apps (FoA) aliases Facebook's portfolio. The betterment successful engagement driven by Reels has apt helped assistance its FoA's regular progressive people (DAP) up to 2.96B, up 0.24% QoQ.

However, arsenic Meta's DAP inches person to nan 3B mark, we judge it will beryllium progressively challenging to proceed driving DAP growth. Notably, Facebook's main maturation vector "is mostly successful Asia and [the] remainder of nan world, which does not monetize well."

As such, nan institution is faced pinch structural challenges arsenic its maturation has slowed considerably, behooving it to trust further connected engagement to thrust monetization.

As such, nan institution has made engagement a critical focus successful nan look of awesome nonaccomplishment challenges from Apple's (AAPL) ATT, worsened by TikTok's (BDNCE) competitory headwinds.

Stratechery's Ben Thompson highlighted successful a caller article really "Facebook has accrued engagement by having group walk much clip connected Reels and accrued advertisement load by introducing caller advertisement placements."

As such, nan company's usage of its AI stack to thrust find has shown improvement, coupled pinch nan summation successful advertisement load. As such, moreover though advertisement prices fell 22% successful FQ4, it was mitigated by nan summation successful advertisement impressions, which roseate 23% YoY.

Therefore, it demonstrated that advertisers person been taking advantage of Facebook's little advertisement prices to boost impressions. As such, nan last day thesis suggesting a important advertiser exodus from FoA's portfolio apt isn't supported.

Tigress Financial Partners moreover highlighted that Meta "will beryllium capable to monetize its family of apps and early merchandise introductions," leveraging connected AI and Facebook's societal chart successful unison. Coupled pinch its monolithic DAP base, Meta has important leverage to thrust advertisement impressions that different societal media networks crave for.

Therefore, we judge Facebook's competitory moat has been lifted substantially by nan preamble of AI, pinch further investments seen arsenic appropriate. We judge nan institution that's champion placed pinch important resources to leverage AI is apt Meta, arsenic integer show advertizing shifts from deterministic to probabilistic.

Meta Revenue alteration % and EBIT margins % statement estimates

Meta Revenue alteration % and EBIT margins % statement estimates (S&P Cap IQ)

However, Meta is not expected to return to its high-growth shape seen earlier nan pandemic.

Coupled pinch a overmuch little profitability floor plan done FY25, Meta's Reality Labs aliases RL will apt proceed to drain resources amidst nan company's title pinch YouTube (GOOGL) (GOOG) and TikTok successful their conflict for short-form video contented leadership.

Moreover, TikTok's willingness to group attractively debased cost-per-thousand (CPM) "is a challenge to competitors" arsenic it continues to summation marketplace share. Moreover, nan institution has ramped its gait to share much revenue pinch its creators, arsenic its maturation has recently slowed dramatically.

We judge TikTok's aggressiveness successful a structurally slower-growth societal media abstraction is simply a threat to Meta and effect its expertise to clasp its grip successful nan broader integer advertisement space.

With that successful mind, should investors disregard nan abovementioned headwinds and plow into nan revival driven by Zuckerberg's "year of efficiency," arsenic nan media turned from highly pessimistic to highly optimistic successful nan abstraction of 3 months?

We impulse investors to beryllium cautious here.

META value floor plan (weekly)

META value floor plan (weekly) (TradingView)

META's singular surge has normalized its valuation (NTM EBITDA: 8.1x), successful statement pinch its peers' median of 8.9x (according to S&P Cap IQ data).

However, pinch Meta's maturation expected to slow, we judge marketplace operators will apt beryllium cautious astir re-rating META further upward successful ray of structural impediments, continued metaverse spending, and competitory headwinds.

Moreover, META's mean-reversion value action from its erstwhile capitulation besides seems to person reached a statement successful nan sand.

As highlighted earlier, META's upward betterment has stalled post-earnings. We judge bottom-fishers person apt capitalized connected nan betterment complete nan past 3 months to trim exposure.

As such, we judge it's clip for investors who followed our November 2022 article, wherever we based on that a "mean-reversion opportunity has presented itself," to return immoderate risks disconnected nan table.

Rating: Sell (Revised from Hold).

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Editor: Naga



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