Meta Platforms (META, Financial) has experienced impressive stock performance this year, yet analysts from Canada's Scotiabank suggest that investors should hold off on purchasing more shares at this time. Analyst Nat Schindler initiated coverage of Meta stock with a "Sector Perform" rating and set a target price of $585, slightly below its recent closing price. The stock has surged by 66% this year and risen by 86% over the past 12 months. Recently, Meta's stock closed with a gain of over 1%, reaching $589.95, outperforming the S&P 500 index, which climbed 0.61%.
Several factors have contributed to Meta's stock rise. The company dubbed this year as its "Year of Efficiency" and announced several cost-cutting measures. Additionally, investments in generative AI have buoyed the stock price. Meta has also seen positive investor sentiment regarding its virtual reality projects, such as the Meta Quest headset and smart glasses, despite their relatively high costs.
During a recent earnings call, Meta's CFO Susan Li disclosed that the Reality Labs division, responsible for VR products, faced an operating loss of $4.5 billion in the second quarter. Approximately 98% of Meta's revenue is derived from advertising, primarily on platforms like Facebook and Instagram.
Schindler, in a research report, emphasized the risk Meta faces in maintaining user engagement on its social media platforms. He noted that studies indicate a decline in active user posts, with many American adults becoming more selective about sharing content. Privacy issues, misinformation, and ad saturation are other challenges potentially reducing user time on social media, which could pressure Meta's key metrics.
The decline in daily active users could hinder revenue growth. This risk, along with high costs associated with AI and VR projects, are reasons Schindler advises investors to remain cautious. Out of 70 analysts surveyed by FactSet, 59 recommend buying Meta Platforms, with 9 suggesting holding and 2 advocating selling.
