Sell Meta Stock, Analyst Says. High Costs, Competition Are Weighing It Down.

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Another analyst shared a bearish view on

Facebook

parent Meta Platforms Monday.

Needham analyst Laura Martin recommended investors sell the shares of the ad-reliant tech giant, as she sees cost growth far exceeding revenue growth in the near term, while the long-term valuation risk from competition and consumer behavior shift remains.

“At current price levels, we recommend investors use Meta as a source of fund,” she said. Along with dropping her rating to Sell from Neutral, Martin also lowered her financial estimates for the quarter and full year.

Martin expects Meta (ticker: META) to generate $27.7 billion in revenue in the current quarter, down 6% from her previous estimate, and lower than the management’s prediction and roughly $29 billion that analysts on the Street are predicting, according to FactSet. She sees the company lowering its full-year financial outlook in the earnings call this month.

The rising costs are due to its investment in the Metaverse while slowing revenue comes on the heels of Meta’s decision to push users toward Reels, which monetizes at a lower rate than Newsfeed and Stories, and due to

Apple
’s
(AAPL) privacy initiatives. Recapturing users from TikTok requires this sacrifice but what if consumers don’t leave TikTok, the analyst asked.

In addition to self-inflicted margin pressure, Meta in the long term is losing the fight for attention on mobile devices to video content including streaming, as consumer behavior shifted toward video during the Covid-19 pandemic, Martin said. Besides, competition headwinds never end for the company. First, it was

Snapchat

in 2017 and now it is TikTok. Martin believes its profitability will be attacked regularly by competitors until one day Meta won’t win.

Needham’s Martin is far from the only one sharing pessimistic commentary on the company in recent days. In a research note last month, Monness Crespi Hardt analyst Brian White provided cautious views on the near-term picture for Meta and cut his target price to $250, from $300. However, he maintained his Buy rating.

Barclays analyst Ross Sandler also cut his price target on Meta last week to $280 from $370. His note, which cited other ad-supported internet stocks such as Alphabet (GOOGL), listed a step-down in advertising spending, growing competition from TikTok and

Apple
,
and tough year-over-year comparisons as headwinds.

Not all analysts are downbeat on the stock. Earlier this month, analyst Justin Post of BofA Global Research said Meta Platforms stock is one of the best plays in the internet sector because the risk of a recession is already reflected in its price.

In the past month, the stock has fallen almost 7% as analysts have cut estimates and price targets. It dropped over 4% to $163.40 on Monday. Martin doesn’t have a price target on the stock.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com