PhillipCapital’s Jonathan Woo has maintained a “buy” call on Meta Platforms (formerly known as Facebook) amid a weaker 1QFY2022, but has lowered his target price to US$312 ($419.62) from US$424.
In a Feb 7 report, Woo notes that Meta’s 4QFY2021 results were “in line with expectations”, with the company reporting 20% y-o-y revenue growth for 4QFY2021, and 37% YoY revenue growth for FY21.
This was supported by a 9% y-o-y increase in user growth, 6% y-o-yincrease in prices of digital ads, and 13% y-o-y increase in ad impressions.
However, despite a stable FY2021, Meta is likely to face more pressures from costs and privacy changes, guiding for a 1Q22 revenue growth of just 3-11%, impacted by headwinds in both ad impressions and prices.
Woo explains that there is reduced effectiveness of targeted advertising due to Apple iOS 14 privacy changes, saying, "Apple’s privacy changes continue to affect Meta’s core advertising business, decreasing the accuracy of its targeted ads, and making it tougher for the company to track and measure the outcomes of these ad campaigns."
He notes, “as a result, advertisers have begun reallocating portions of their ad budget away from Meta, and towards competitors like Google and Amazon.”
This is also coupled with increasing competition from TikTok and other social media companies, with Woo adding that the emergence and growth in popularity of short-form video apps like TikTok continue to be a threat to Meta, particularly with its younger users.
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User growth has begun to slow down, with only 0.3% q-o-q for 4QFY2021. As a result, Meta has begun transitioning its own services towards more short-form video like Reels, in an effort to better serve its younger audiences.
Meta has also scaled up hiring in this area, leading to higher total expenses and lowered margins by almost 10%.
Woo says this shift in format could be accompanied by near term pressures on impression growth, as well as slower monetization rates.
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As such, it has guided for a relatively weak 1QFY2022, and set a negative outlook for the rest of FY2022.
1QFY2022 revenue is expected to be US$27 billion-29 billion, representing only a 3-11% y-o-y range for growth, with several headwinds such as increased competition and macroeconomic pressures as reasons for the weak guidance.
Furthermore, Meta also guided for a total expenditure of US$90 billion-95 billion in FY2022, driven by investments in technical talent, and infrastructure-related costs, as it pivots towards a short-form video heavy format, and increases focus on developing Reality Labs.
Guidance for FY2022 capex was in the US$29billion-34billion range – a 56-83% y-o-y increase, in line with the company’s accelerated investments in data centres, servers, network infrastructure, and office facilities.
Woo expects FY2022 to be a “transition year” for Meta, as it “continues to battle headwinds from regulators and competitors to maintain its leading position in the social media industry.”
Shares of Meta closed at US$224.91 on Feb 7, with a FY2022 price to earnings ratio of 26.2.
