Roth MKM, a Wall Street analyst, expressed caution about Meta Platforms, the parent company of Facebook and Instagram, in a note to clients. They cited concerns about advertising spending from Chinese e-commerce players Temu and Shein, which have been major growth drivers for Meta in recent quarters. Roth MKM believes that the expectations for a strong earnings report may have minimal margin of error. Despite this cautious outlook, the firm raised its price target on Meta to $620 a share, maintaining a buy rating on the stock.
Meta Platforms’ growth rate in the Asia-Pacific region slowed to 28% in the second quarter from 41% in the first quarter, and Roth MKM anticipates further pressure in the July-to-September period. The firm pointed to PDD Holding’s slower marketing spend and revenue miss in the second quarter as indicators that ad budgets from companies like Temu and Shein could soften. Additionally, they noted that these brands are becoming more recognized through word of mouth rather than social platforms. Despite these concerns, analysts remain bullish on Meta in the medium and long term.
Meta had previously warned about a slowdown in annual revenue growth in Q3, and Roth MKM’s analysis sheds light on the impact of softer spending from Chinese advertisers like Temu and Shein. These advertisers have been crucial for Meta’s growth, representing 10% of its total revenue in 2023. The stock has performed well in 2024, with shares up over 14% in the past month, and sitting close to its all-time closing high. Meta’s ability to innovate and leverage artificial intelligence has helped drive user engagement and make its ads more effective.
While a potential decline in Chinese ad spending is a risk, Meta’s investments in AI continue to drive value for advertisers looking to reach its vast user base. The company has levers to manage a decline in Chinese advertising, such as increasing the amount of ads shown on platforms like Reels. Jim Cramer’s Charitable Trust, a subscriber to the CNBC Investing Club, remains long on Meta, having taken profits in late September. The long-term outlook for Meta remains positive, despite potential short-term challenges.
In conclusion, while there are concerns about a potential slowdown in Chinese ad spending impacting Meta Platforms’ earnings, analysts remain positive about the company’s long-term prospects. Meta’s ability to innovate and leverage AI technology, along with its strong user engagement, positions it well for continued growth. Despite potential challenges in the near term, Meta’s strategic investments and potential levers to manage changes in ad spending provide confidence in its ability to navigate evolving market dynamics.
