Meta Platforms: Mixed Q2 But Slowly Getting Better

(Preview) Company Update (META US) (Buy)

Summary

• Meta stock fell 5% after Q2 results last Wednesday. While it has now recovered, it remains at half of the level it was at a year ago.

• Q2 results were mixed. Ad revenues were stable in total, but fell in the core U.S. & Canada region and was much worse than Alphabet.

• Reels grew significantly from a low base and now has a $1bn run-rate, but it is unclear if it has narrowed the gap with TikTok.

• More positively, the impact from Apple’s anti-tracking changes has not increased and is being lapped. Earnings may bottom this year.

• At $170.57, assuming EPS falls 33% this year, the P/E is 17x. We expect a total return of 137% (28.9% annualized) by 2025 year-end. Buy.

Introduction

Meta Platforms Inc. (formerly Facebook) reported Q2 2022 results after markets closed last Wednesday (July 27). META shares fell 5.2% the following day, but have since recovered during a wider market rebound.

META stock is roughly flat from when we initiated our Buy rating back in March 2019, having halved in the past y…