Facebook owner Meta Platforms received a positive review and an upgrade by a prominent Wall Street analyst Friday, who cited an enhanced focus on cost discipline and other fundamentals. Meta stock, which is down about 64% this year, jumped.
JPMorgan analyst Doug Anmuth said challenges that Meta has faced this past year include iPhone privacy changes by Apple, which cost Meta billions in lost advertising revenue. He also included competition from TikTok, high expense growth and an uncertain build-out of its metaverse plan.
"However, heading into 2023, we believe some of these top and bottom line pressures will ease, and most importantly, Meta is showing encouraging signs of increasing cost discipline, we believe with more to come," he wrote in a note to clients.
Meta stock climbed 2.8% to close at 119.43 on the stock market today.
Anmuth raised his price target on Meta stock to 150 from 115, and went from a neutral rating to outperform.
He listed several reasons for the positive outlook on Meta. First on that list is increased cost controls pertaining to total expenses and capital expenditures. Another is an easing of the impact caused by Apple and increased monetization of Meta's Reels, which competes against TikTok.
META Stock: Sustainable Financial Discipline
"We believe Meta is building the muscle for more sustainable financial discipline that can help drive further upward earnings revisions, and we believe the risk-reward is attractive at current levels," Anmuth said.
Meta's capital expenditure investments have more than doubled from $15 billion in 2020 to an estimated $32.5 billion in 2022.
"Importantly, we believe 2023 could represent a near-term peak in capex, and we project a 9% decline in 2024 to $30 billion," he wrote. "We're confident in our upgrade, but recognize that the Meta story is still not an easy one."
Anmuth said areas of pushback include uncertain and volatile macroeconomic conditions. Recent cost-cutting measures by Meta may not be enough.
Also, he said, there's concern that metaverse investments "are difficult to get comfortable with, as the company is spending tens of billions of dollars each year on a project that likely won't see the return on those investments for several years.
Meta stock is up about 35% since bottoming in November.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
