Meta Platforms Needs Fresh Impetus to Extend Rally

After climbing by more than +77% this year, Meta Platforms (META) may need a new catalyst to extend the rally.  Meta Platforms posted an 11-month high earlier this month after implementing plans to cut costs and make the company more efficient.  However, with the bulk of the cost-saving plans already in place, the company may need to see a pickup in ad spending to sustain this year’s rally. 

Meta Platforms will report Q1 earnings results Wednesday, and the consensus is for Q1 revenue to fall -0.9%.  Analysts are expecting a slow recovery in future sales growth, with single-digit growth anticipated through year-end, well below the company’s average annual growth of 42% over the decade since 2012.  CFRA Research said it isn’t expecting a recovery in digital ads this year while noting that most of Meta Platform’s cost reductions “have largely been accounted for.”

Advertising sales for Meta Platforms, which make up nearly all of its revenue, came under pressure last year when Apple adjusted its privacy policy to make it hard for social media platforms to target iPhone users.  Headwinds increased after higher inflation and a slowing economy squeezed the ad budgets of many businesses.  The markets will look to Alphabet’s (GOOGL) quarterly earnings results later today to gauge the health of the online advertising industry.

Even with this year’s sharp rally, Meta Platforms is still trading at cheaper levels relative to its mega-cap peers.  Trading at 16 times projected earnings, Meta Platforms is cheaper than Apple (AAPL), Alphabet, Amazon.com (AMZN), and Microsoft (MSFT).  It also has a lower multiple than the S&P 500 ($SPX) (SPY) and Nasdaq 100 ($IUXX) (QQQ) indexes and is well below its 10-year average of 26 times, according to Bloomberg data.

Some analysts are optimistic that the digital ad market will recover, which would be a bullish catalyst for future earnings growth for Meta Platforms.  Globalt Investments, which owns Meta Platforms in its portfolio, said, “The revenue growth rate does have a chance to re-accelerate from here. Where it goes from there is another question, but re-acceleration is a good sign.” 

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.