Bank of America Downgrades Meta To Neutral From Buy With Metaverse Concerns

According to CNBC, Bank of America downgraded Facebook parent Meta (META) to neutral from buy due to the possibility that advertising expenditure pressures will intensify next year, resulting in budget cuts.

Bank of America reduced its price estimate for the stock from $196 to $150. Meta shares plummeted roughly 4% before rebounding to trade slightly lower and closed at $129.72 on Monday.

Bank of America also stated that Meta’s massive investment in the metaverse is likely to remain an overhang on the stock, noting that analysts are unlikely to deduct metaverse spending from EPS for valuation purposes given the lack of progress with users, potential new competition from Apple, and a higher cost of capital mindset.

The European Digital Markets Act and many assessments of Section 230 liability protection are projected to remain hard-to-quantify sentiment overhangs on the company, which may hinder value-focused purchasers, according to the research.

According to the note, Meta should address investor concerns about Instagram usage headwinds, spending on building the metaverse given the perceived lack of user traction, high capital expenditures affecting free cash flow (FCF), Reels content quality and margins, and progress, and a timeline for targeting improvements. Meta will release its third-quarter earnings after the market closes on Wednesday, October 26.

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