BofA Blasts Meta's Reels Feature Ahead of Earnings

The Facebook parent is also threatening to block news content in Canada amid new legistation

Digital Content Manager
Oct 24, 2022 at 10:12 AM
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It's shaping up to be another day of dismal headlines for Meta Platforms Inc (NYSE:META), which fell last Thursday after Snap's disappointing quarterly report. Now shares are sinking even lower, last seen down 1.1% at $128.56, following news that the Facebook parent threatened to prohibit users from sharing news on its platform in Canada amid concerns that new legislation in Canada "misrepresents the relationship between platforms and news publishers." Canada recently enacted the Online News Act, which forces platforms like Facebook and Alphabet's (GOOGL) Google to pay news publishers for their content and negotiate commercial deals. 

Separately, BofA Global Research downgraded the social media giant to "neutral" from "buy," and slashed its price target to $150 from $196. The analyst said the social media giant's move to Reels on its Instagram and Facebook platforms is a "potential negative for gross margins and long-term competition." Mizuho also chimed in with a bear note, cutting its price target to $180 from $225. 

These analyst calls come right before Meta's third-quarter earnings report, which is due out after the close this Wednesday, Oct. 26. The average consensus earnings per share (EPS) for the quarter is sitting at $1.88, implying a more than 41% year-over-year drop as investors fret over the sharp pullback companies have made in digital ad spending. 

The stock has a history of pretty wild post-earnings swings. After its February 2022 report, META dropped 26.4%, but rose 17.6% the session after its April 2022 earnings. However, just two of it's last eight next-day session were positive, with the stock averaging a move of 9.2%, regardless of direction. 

Circling back to analyst sentiment, the security is looking vulnerable to even more bear notes. Of the 31 brokerages in coverage, 22 considered the stock a "buy" or better coming into today. Plus, the 12-month consensus price target of $208.33 is a 65.4% premium to current levels. 

META is traveling dangerously close to its Oct. 13 more than five-year low of $122.53 this morning. The equity did manage to snap a five-week losing streak last week, eking out a muted 2.6% win. However, year-to-date, the shares suffer a 62.6% deficit. 


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