- Morgan Stanley downgraded Meta stock to equal-weight from overweight and slashed its worth aim to $105 from $205.
- Analysts cited Meta’s forecast for capital spending, which is ready to weigh on its cash flow.
- “And in the meantime, we see earnings power staying depressed,” the monetary establishment’s bear in mind acknowledged.
Morgan Stanley downgraded Meta stock Thursday, a day after Facebook’s mom or father agency reported a decline in earnings for the second straight quarter and provided capital-spending steering that turned heads on Wall Street.
Analysts reduce their rating on the stock to equal-weight from overweight and slashed their worth aim to $105 from $205.
Morgan Stanley wrote in a bear in mind that whereas the monetary establishment wouldn’t favor to make scores changes in a reactionary pattern, “we think META’s latest results and forward capex guidance are thesis changing and likely to weigh on the shares for some period…until the market can feel confident in execution and return on invested capital from these outsized investments.”
In particular, analysts pointed to Meta’s steering for $69 billion in capital expenditures over two years, saying that signifies “structurally higher capital intensity.” Even the low end of Meta’s spending outlook for 2023 alone was $7 billion bigger than anticipated, they added.
The big spending wave is being pushed by investments in artificial intelligence-driven info amenities, as Meta scrambles to adapt to a model new social-media landscapes that’s now dominated by short-form video, in accordance with the bear in mind.
Shares of Meta fell as quite a bit as 25% Thursday, and erased roughly $65 billion from the company’s market capitalization. By midday, the stock was down 22%, shopping for and promoting at about $101.
Meta, beforehand commonly known as Facebook, pivoted away from a highlight on its flagship social media web page in direction of big spending on the metaverse to extra delve into the Web3 home in 2021.
But optimism from management surrounding the lack of layoffs and insistence on the future of Reality Labs, amongst totally different components, was not ample to offset disappointing steering for subsequent quarter and 12 months ahead, in accordance with a separate bear in mind Thursday from strategists at JPMorgan.
Eventually, the upside from Meta’s investments will current up in the company’s quarterly tales, and there are early indicators that Reels — Meta’s reply to TikTok — is displaying some enchancment, Morgan Stanley acknowledged. But good factors in earnings and engagement may not current important advances until correctly into 2023.
“And in the meantime, we see earnings power staying depressed,” the bear in mind acknowledged.