Proactive Investors - Analysts at Wedbush have slashed their price target for Facebook (NASDAQ:META) and Instagram owner Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB) as the company enters another multi-year investment cycle for its Metaverse and AI initiatives which will take several years to scale and monetize.
“We have revised down our profitability estimates to reflect the increased pace of expense growth and higher capex spending over the next few years as Meta repositions itself to emerge as a long-term leader in AI,” they wrote in a note.
They lowered their price target from $570 to $480 but reiterated their ‘Outperform’ rating.
Meta shares traded at about $440 late morning on Friday.
The analysts believe the setup for Meta will be challenging in the near term as investors weigh up the implications of more aggressive spending and returns likely to be realized over a longer period.
“Upside in the near term may be limited, in our view, as investors wait for more clarity on potential 2025 spending levels, proof that the company can meet growth expectations in 2H against harder comps, and evidence of sustainable engagement of newer AI products from both advertisers and users,” they wrote.
They believe readthrough from Meta’s results is neutral for Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), noting that they favor Google in the sector.
“We think the shift in investment cadence relative to prior expectations is unique to Meta this quarter, as the company more aggressively pursues growth across both AI and metaverse projects,” they wrote.
The monetization of newer ad formats such as Reels is seen as a driver of intermediate-term growth.
The analysts also pointed to the continued adoption of Advantage+ supported by the implementation of AI tools into the company’s ad stack, broad-based strength at the industry level, and ongoing impression and engagement growth due to improvements in Meta’s recommendation engine as growth drivers.
“Longer-term, there is significant optionality related to new consumer and advertiser-facing products, including AI agents, metaverse hardware, and other initiatives that Meta is investing behind,” they wrote.