Meta's ad strength more than supports reality losses: Analyst
Barton Crockett, Rosenblatt’s senior research analyst, joins Seana Smith and Brad Smith on Morning Brief to outline his bullish stance on Meta Platforms. “The growth supports the multiple… The bigger backdrop, we think, is that people are getting more comfortable with Meta’s strategic positioning. Their investments in AI have yielded improved returns on investment for marketers and better engagement from users, and they've kind of led and developed this direct marketing to kind of small- or mid-sized companies globally. This almost new niche that they've pioneered and owned.” Crockett explains. He says, “Frankly, I think the big worry on the stock historically has been spending, right? In particular, their investments in their reality segment, which, I think, are overdone and are not going to generate a return that we think pencils out commensurate to the investment. But they are executing better. The devices that they were showing off at their recent Meta Connect [are] more resonant with the consumer than even what Apple is doing right now. And their Ray-Ban glasses could actually be something of a hit this Christmas.” Despite the analyst's view that Meta's investments in the reality segment won't necessarily pay off, he explains Meta can afford the project. "The amazing thing is that they don't ever have to make money in this. We don't assume they do. For the earnings growth to be impressive enough and to support the equity from here, you know, if they did, that'd be a huge upside, there. You know, we think on pace to lose 17 billion-ish this year in operating profit on reality. And that's going to be more than they lost last year. They probably lost 60 billion cumulatively on this. And yet they're growing EPS." Crockett says Meta is "so strong in the advertising marketing that they can support this basically dreamer's tax on reality, and you can still make a great argument for the stock."He explains, "These guys were growing their advertising revenues at a 20% year-over-year pace in the quarter that was reported for June. We think they'll keep growing at close to that pace in the September ending quarter. That's going to put them up at the very fastest growers in advertising. Nearly twice the growth rate of Google and right on top of what Amazon is doing with their new ad push and not too far behind the connected TV darling, the Trade Desk... These guys are large. They're growing rapidly, and that's a very profitable growth stream." For more expert insight and the latest market action, click here to watch this full episode of Morning Brief. This post was written by Naomi Buchanan.
