Roth MKM analysts are cautious about Meta Platforms, the parent company of Facebook and Instagram, due to concerns about advertising spending from Chinese e-commerce players Temu and Shein, which have been major growth drivers for Meta in recent quarters. The analysts believe that expectations for a strong earnings report from Meta may have a minimal margin of error. The growth rate of Meta’s Asia-Pacific revenue has slowed, and Roth MKM believes it could be under further pressure in the upcoming quarter. The firm raised its price target on Meta to $620 a share, but still maintains a cautious outlook in the short term.
Meta’s warning on its July earnings call about annual revenue growth slowing in Q3 as it laps strong gains from China-based advertisers is also a cause for concern. Softer spending from Temu and Shein, major advertisers on Meta’s platforms, could impact the company’s financials. Despite this, Meta’s stock has been performing well, with shares up more than 14% over the past month. The company’s ability to innovate and leverage artificial intelligence has been a key factor in its success, driving user engagement and making its ads more effective.
While a pullback in Chinese ad spending from Temu and Shein is significant, Meta has been proactive in managing this risk. The company’s investments in AI have helped boost its value to potential advertisers looking to reach its massive user base. Meta has levers it can pull to manage a decline in Chinese advertising, such as increasing the amount of ads shown on Reels, its short-form video platform. Despite the potential for a slim margin of error in Meta’s upcoming earnings report, the company’s long-term outlook remains positive.
As a subscriber to the CNBC Investing Club with Jim Cramer, investors will receive trade alerts before Jim makes a trade. Jim Cramer’s charitable trust is long on Meta Platforms. It is important to note that no specific outcome or profit is guaranteed, and investors should be aware of the terms and conditions, privacy policy, and disclaimer of the Investing Club. Overall, while there are concerns about Meta Platforms in the short term, the company’s long-term prospects and ability to innovate are reasons for optimism.
