Meta Platforms sinks as BofA downgrades on worries over increased ad spend pressure

Justin Sullivan

Meta Platforms (NASDAQ:META) fell on Monday as Bank of America downgraded the tech giant on worries over increased pressure on advertising spending.

Analyst Justin Post moved his rating on Meta (META) to neutral from buy noting that checks into the stability of ad revenue indicated an in-line quarter. However, concerns over budget cuts next year and the weakness seen in Snap's (SNAP) revenues may weigh on sentiment.

"While [fourth quarter] & 2023 expectations have been lowered, we expect advertiser budget cuts in early 2023 to weigh on sentiment and drive added uncertainty on post-IDFA changes and Reels transition," Post wrote in a note to clients. The analyst also lowered his price target on Meta (META) to $150 from $190.

The analyst added that 2023 revenue growth is expected to be just 4% year-over-year to $120B, well below the $127B that Wall Street is expecting, with the potential for "downside risk to our estimates in a recession."

Meta Platforms (META) dipped slightly more than 1% to $128.50 in premarket trading.

In addition, Post said there is a more cautious attitude towards consumption on Reels, especially in light of "declining content consumption" on Snap (SNAP).

"With total [Facebook and Instagram year-over-year] time spent was stable to slightly down per Sensor Tower in [the third-quarter], Reels usage ramp is not proving to be incremental, and time spent is likely down on more valuable social content, in our view," Post added.

Looking to the third-quarter, Post expects Meta (META) to report revenue in-line with estimates at $27.43B. There is the potential for EBITDA to come in above expectations due to continued cost cuts.

Last week, Citi said Meta Platforms (META) remains one of the firm's top picks in the internet space going into third-quarter earnings due to a "compelling" risk-reward opportunity at current levels.

Analysts are largely positive on Meta Platforms (META). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates META a HOLD.