The downgrade is partly due to concerns about the metaverse.
It would seem lately that Zuckerberg and his Meta company cannot catch a break. The Bank Of America has recently downgraded the company from buy to neutral citing pressure from advertising spending pressure increases. The bank believes these increases would result in budget cuts. The price target on the stock of Meta was cut by BOA by $46 from $196 to $150. The Meta stock also saw a 4% drop in trading early last Monday but recovered to $129.42 later that evening.
The Bank of America has stated the huge investment in metaverse technology made by Meta will remain an “overhang” on the stock for the time being. BOA believes analysts are not likely going to back out metaverse spending from earnings per share for valuation purposes.
According to the report, the European Digital Markets Act and numerous reviews of Section 230 liability protection will remain as “hard-to-quantify sentiment overhangs on the stock,” which may deter value-conscious buyers.
According to the note, Meta needs to address investor concerns about Instagram usage headwinds, spending to build the metaverse given the perceived lack of user traction, high capital expenditures affecting free cash flow (FCF), Reels content quality and margins, progress, and a timeline for improving.
As of Wednesday, Oct. 26, Meta will report its third-quarter results.
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