Meta’s ‘outstanding’ Stock Rally Can Keep Roaring, Analyst Says ‍

Analyst Rob Sanderson from Loop Capital believes that Meta Platforms Inc.'s stock has experienced a remarkable rally this year and sees further potential for it to rise. Despite the stock nearly doubling in value so far in 2023, Sanderson upgraded it to a buy rating from hold on Monday. He acknowledged that cost-cutting measures have contributed to the stock's performance thus far, but he believes there are still opportunities for Meta shares to benefit from revenue growth.

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Sanderson stated, "While we consider expense rationalization as a one-time driver, we have grown increasingly optimistic about the revenue outlook." He noted that three significant challenges to Meta's revenue—Apple's ad tracking changes, foreign exchange fluctuations, and the transition to Reels—are all in the process of cycling through and transforming into tailwinds. These factors have collectively had a negative impact of approximately "mid-teens percent" on Meta's revenue.

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Sanderson described Meta's product portfolio as being in an exceptionally strong position, with several compelling avenues for growth. He expressed confidence in the enthusiasm surrounding Advantage+, a feature that automates advertising campaigns, believing that it will drive advertiser performance and optimize the utilization of Meta's full range of ad inventory. Sanderson wrote, "This monetization driver appears to have longevity and could continue generating positive results for many more quarters."

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He also expressed increased optimism regarding the revenue opportunities arising from Meta's Reels content format, which competes with TikTok. Sanderson observed that brand advertisers are providing increasingly positive feedback on Reels' performance, and Meta's advertising products in this area are evolving rapidly. 

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Drawing on the transformative impact of short-form video platforms on the advertising and e-commerce markets in China, Sanderson expects Reels to become a significant revenue generator for Meta and create substantial opportunities in social commerce.

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While Meta is still in the early stages of monetizing Reels, and users' engagement with this content format has initially impacted revenue negatively, Sanderson anticipates that the headwinds from Reels will transition into tailwinds by the end of the year. He sees "meaningful room" for Meta to expand Reels' contribution to revenue.

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