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Meta stock dropped Monday as a Wall Street analyst downgraded the social media company to a rating of underperform, from hold. She cited “deteriorating fundamentals” and “valuation risks,” among other reasons.
“We believe investors should remain on the sidelines while they assess several long-term valuation risks,” Needham analyst Laura Martin wrote in a note to clients. The valuation risks include competition, consumer behavior shifts, regulatory risks and metaverse investment risks.
Meta Platforms (META) stock dropped 4.7%, closing at 162.88 on the stock market today.
Meta stock has lost about half its value this year, as Chief Executive Mark Zuckerberg has tethered the company’s future to the metaverse, an entirely new method of communicating. But user growth is stalling, and advertising revenue is under pressure due to competition and the slowing economy.
Consumer behavior shifted toward video during the Covid pandemic, Martin said. “Meta is losing the fight for attention on mobile devices to video content including streaming, video games, TikTok and YouTube, as evidenced by its anemic revenue growth vs. these competitors,” she wrote.
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Bottom line, said Martin, “At a time when Meta’s revenue growth is slowing, its metaverse investments to chase a goal that may (or may not) pay off many years from now is NOT where we recommend investors allocate capital in FY22,” she said.
Meta stock has a subpar IBD Composite Rating of 43 out of 99, according to IBD Stock Checkup.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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