Needham analyst Laura Martin reiterated an Underperform rating on the shares of Meta Platforms Inc
The analyst has put forth insights from conversations with former META employees as well as a social media ad agency CEO.
The analyst has found out that generative AI already influence around 20% of Meta's content generation and monetization efforts and is driving advertising capabilities including the Advantage+ product.
Over the next 2-3 years, the analyst expects Meta to grow its GPU investments as it integrates generative AI across its entire monetization stack.
The analyst notes Meta will buy >150,000 GPUs from NVIDIA Corporation
The internal hurdle rate for operating expenses at META is a 2-3x return on investment over 3 years, while the hurdle rate for CapEx is a 2-3x return on investment over 5 years, noted the analyst.
The analyst warned that the major challenge for Facebook.com and Instagram is slowing user growth as the former is not not attracting younger users and the later is losing out to TikTok's rapid growth.
However, the analyst noted that the user engagement on Facebook and Instagram remained strong, with estimates of 35-50 minutes/day.
The analyst recommend investors use Meta as a source of fund because there are worries that Chinese discount retailers like Temu and Shein, which accounted for >20% of META's 2023 ad revs, will slow as the geopolitical tensions between the U.S. and China over a potential TikTok ban heat up.
Also, why buy META now, when management is saying that they are in a 2-3 year investment cycle, and rev upside will come in 3-4 years, questioned the analyst.
Meta stock has gained more than 75% in the last 12 months. Investors can gain exposure to the stock via Vanguard Communication Services ETF
Price Action: META shares are trading lower by 0.47% at $501.85 at last check Monday.
