Shares of Meta Platforms (META -0.43%) initially slipped on Monday, falling as much as 4.2%. By 2:44 p.m. ET, however, the stock had regained some of its losses, trading down about 0.2%.
Two pieces of competing news vied for shareholder attention as investors in the social media titan digested an analyst downgrade and commentary from an activist investor.
The first catalyst came when BofA analyst Justin Post downgraded Meta Platforms to neutral (hold) from buy, while also slashing the company's price target from $196 to $150. The analyst cited marketing departments cutting their budgets for the remainder of this year and into next, which will weigh on Meta's advertising revenue.
The company also faces ongoing challenges caused by Apple's changes last year, which allow users to opt out of tracking. Meta has struggled to effectively target consumers in the wake of Apple's privacy changes. Furthermore, Meta introduced Reels to compete with TikTok, but so far that has met with limited success.
Finally, Post believes Meta's heavy spending on the metaverse will weigh on the stock until the company proves to investors that it isn't just throwing money down a hole.
Helping the stock regain some ground today was an open letter from Altimeter Capital Management chair and CEO Brad Gerstner. The missive called on Meta to cut its employee count by 20% and reduce spending on the metaverse to no more than $5 billion per year. "An estimated $100 billion-plus investment in an unknown future is supersized and terrifying, even by Silicon Valley standards," Gerstner wrote.
The combination of declining revenue growth and heavy spending has been of growing concern to Meta investors. In the second quarter, Meta reported its first year-over-year revenue decline in the company history, as well as a sequential decline in monthly active users (MAUs), which has driven some investors to the sidelines. Meta expects its declining revenue to continue in Q3 as a result of the struggling economy.
There's little question that Meta has challenges ahead. That said, 3.65 billion monthly users and billions of dollars in free cash flow will help Meta ride out this economic storm. The stock remains a long-term buy.