An analyst is getting cautious on Meta ahead of earnings. The reason is not a surprise

By News Room Last updated Oct 11, 2024

Shares of Meta Platforms are hovering near record highs — but at least one Wall Street analyst is on edge heading into the social-media giants earnings report later this month. The news In a note to clients Friday, analysts at Roth MKM said they are “incrementally cautious” on the Facebook and Instagram parent, citing concerns about advertising spending from Chinese e-commerce players Temu and Shein, which in recent quarters have been major growth drivers for Meta . “[We] believe buyside expectations for a clean beat and raise quarter have minimal margin of error,” Roth MKM wrote. Meta is set to report after the close Oct. 30. The growth rate of Meta’s Asia-Pacific revenue slowed to 28% in the second quarter from 41% in the first quarter, and Roth MKM argued it could be under pressure again in the July-to-September period. Analysts pointed to Temu parent PDD Holding’s slower marketing spend and second-quarter revenue miss as a sign that ad budgets from these players could soften further. Another reason: Roth MKM believes Temu and Shein are seeing declining importance in using Facebook and Instagram to acquire customers through ads. Based on its survey of consumers, users are increasingly becoming aware of these brands by word of mouth rather than social platforms. Still, the firm raised its price target on Meta to $620 a share from $550, implying a 6% upside from Thursday’s close, because analysts are still bullish in the medium and long term. Roth maintained its buy rating on the stock. META YTD mountain Meta Platforms’ stock performance so far in 2024. Big picture Roth MKM’s analysis adds context to Meta’s warning on its July earnings call about annual revenue growth slowing in Q3 as it laps strong gains from China-based advertisers. Softer spending from Temu and Shein would show up in Meta’s financials because they’ve been major advertisers on its platforms in an attempt to expand their reach across the U.S. and Europe. Their ad spending helped fuel Meta’s growth in 2023, with China-based advertisers representing 10% of its total revenue. Meta has been a strong performer recently, with shares up more than 14% over the past month. The stock sits roughly 1% below its all-time closing high of $595.94 a share on Oct. 4. Bottom line While pullback in Chinese ad spending from Temu and Shein is notable, it’s something we’ve flagged as a potential risk before. Most importantly, Meta’s ability to innovate and leverage artificial intelligence has kept the company moving forward. Meta’s investments in AI are driving user engagement and making its ads more effective, boosting its value to other potential advertisers eager to reach Meta’s more than three billion daily active users. And, as we reported over the summer , Meta has levers it could pull to manage a decline in Chinese advertising, including increasing the amount of ads shown on Reels, its short-form video platform. Roth MKM may be right that the margin for error in Meta’s quarter is slim, but we’ve been disciplined with this position and took profits in late September , which helps guard against any potential disappointment. And Meta’s long-term outlook remains bright. (Jim Cramer’s Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A logo of US company’s Meta is displayed during the Vivatech technology startups and innovation fair, at the Porte de Versailles exhibition center in Paris, on May 22, 2024.

Julien De Rosa | Afp | Getty Images

Shares of Meta Platforms are hovering near record highs — but at least one Wall Street analyst is on edge heading into the social-media giants earnings report later this month.

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