Written by Brenda Nakalema

Meta’s Earnings Might Fall Short Again

Wall Street is bracing for yet another terrible quarter for Facebook parent company Meta Platforms. The poor performance comes amidst …

Wall Street is bracing for yet another terrible quarter for Facebook parent company Meta Platforms. The poor performance comes amidst signs of broader slowing in the overall digital advertising sector. The continued setback from Apple’s (ticker: AAPL) push to limit the tracking of iPhone user activity across apps and websites- hasn’t played in favour of the social media giant.

Analysts at RBC Capital and Oppenheimer trimmed estimates on Wednesday for Meta’s (ticker: FB) first-quarter earnings report, due shortly after trading on April 27. Brad Erickson, an RBC analyst, decreased his price target on Meta to $240 from $245; however, he maintained an Outperform rating on the stock. He holds fears that results will disappoint the street again.

Meta shares on Wednesday stood at $214.89, a 0.3% gain.

First-quarter guidance fell way short of Wall Street expectations, and the company warned that Apple’s policy changes would further slice $10 billion from its 2022 revenue. The company reported its fourth-quarter results in early February and triggered a huge selloff of its shares. The stock has since lost almost a third of its value.

After a round of channel checks with ad agencies serving small and medium-sized businesses, Ericsson chose to cut estimates and increased his conviction that Meta would report “another rocky quarter”. According to him, there was no visible improvement in the company’s ad targeting and performance.

“Digital ad spend decisions remain in flux with many SMBs considering new channels away from Facebook for the first time,” he writes. “We’d expect some reversion at some point given Facebook’s audience size and relative scaled conversion advantage…but we see that narrative as unlikely to materialize near-term.”

Erikson remains long term bullish on Meta shares but insists that a change in advertiser sentiment might be unlikely. According to the RBC analyst, advertisers have trimmed spending on Facebook and shifted their attention to Google, Tik Tok, LinkedIn, and online influencers. He also noted that online advertising might still be in deep water owing to the cautious spending in Europe after the Russian invasion of Ukraine.

On the other hand, Jason Helfstein, an Oppenheimer analyst, maintains his Outperform rating on Meta shares but cut his target price to $305 from $375. Following his attendance at a recent conference on digital media buying, he concludes that ad targeting on Facebook and Instagram hasn’t improved, forcing advertisers to shift dollars in search of more effective platforms.

Helfstein expects short-term results to be influenced by a combination of the Russia-Ukraine situation, a weaker European economy, and continued setbacks from the Apple ad situation. To exacerbate the situation, Meta is no longer accepting ads from Russian advertisers- 1.5% of 2021 ad revenue- although a quarter of the total revenue comes from Europe.

According to Rohit Kulkarni, an analyst at MKM Partners, the entire group is a threat as a result of a global issues, including Russia, rising interest rates, and the continuing pandemic. He remains particularly worried that the war will leave lingering effects on Europe’s economy.

“While internet stocks have bounced back 15% since the mid- March market trough, we believe a prolonged conflict in Ukraine could spill over to the Q2 Europe outlook,” he warns. “In such a scenario, we believe the near-term outlook for companies with high exposure to Europe and European consumers are more likely at risk.”

The analyst also went a step further and highlighted the potentially huge impact higher interest rates would have on ad spend by companies in rate-sensitive segments like autos and real estate. He sighted companies like Lyft (ticker: LYFT), Snap (ticker: SNAP), Pubmatic (ticker: PUBM) and Integral Ad Science (ticker: IAS). He advises people to stick to stocks with low European exposure, little reliance on a global supply chain, high gross margins and low impact from high-interest rates.