What happened
Shares of Meta Platforms (META 0.43%) were trading down 3.5% as of 10:12 a.m. ET on Tuesday. The gain comes on top of a broad rally for the markets, as investors start to weigh earnings results against low expectations for growth.
Investors even brushed off a bearish note from one analyst about the near-term advertising market that could weigh on Meta Platforms into 2023. Slowing revenue growth has sent Meta's stock price down 60% year to date, but the stock's gain might signal that it is oversold.
So what
KeyBanc analyst Justin Patterson cut his near-term price target for the leading online ad magnets, YouTube owner Alphabet and Facebook owner Meta Platforms. According to Patterson, investors are skeptical over Wall Street's revenue and earnings estimates for these companies, which make most of their money from ad revenue.
The market's complete disregard for the analyst's cautious note today is understandable. Meta Platforms trades at a cheap forward price-to-earnings ratio of 13.7 times this year's earnings estimate. That is well below the average P/E of the broader market and would allow for some variance in operating results in the short term.
Now what
Meta's family of apps -- including Facebook, Instagram, and WhatsApp -- still command a daily active user base of 2.88 billion, up 4% year over year in the second quarter. Market traders are fully aware of the long-term value of these platforms to advertisers, but they have no choice but to sell during periods of bad news, which drives down the stock price. Wall Street operates on a different time horizon than most people saving for retirement.
Meta will announce third-quarter operating results on Wednesday. The market will be listening closely to management's outlook for the fourth quarter and 2023.
