What happened
Shares of Meta Platforms (META +1.33%) were gaining today after the struggling FAANG stock got a much-needed analyst upgrade from Itau BBA.
As of 10:24 a.m. ET, the stock was up 4.9%.
Image source: Meta Platforms.
So what
Itau BBA, a Brazilian investment bank that's one of Latin America's largest, lifted its rating on the tech giant from market perform to outperform. Analyst Thiago Kapulskis said the current price reflects an extremely bearish case, assuming that the company will continue to be disrupted by Apple and TikTok and see cash flow erode as it spends on its metaverse project and watches its market share in social media decline.
Though Kapulskis acknowledged the range of possible outcomes for Meta vary widely, the analyst said the current price makes the stock a buy, adding that the "right price has finally come." In addition to the upgrade, Kapulskis raised his price target to $102, an 11% premium from its closing price Friday.
Now what
Meta stock has plunged 75% from its peak last year, giving up $750 billon in market value along the way. After diving again on its recent earnings report, the stock has emerged as one of the biggest battleground stocks on Wall Street.
As Kapulskis argues, the stock looks cheap at a price-to-earnings ratio of less than 10, given that Meta still has the dominant franchise in social media. However, the company is in a much different place than it was a couple of years ago. Apple has weakened its ad targeting abilities, and TikTok has taken significant market share as the hot new social platform.
Additionally, Meta's Reality Labs division is incinerating cash at an unbelievable rate, losing $3.7 billion in just the third quarter, and the company said losses from the metaverse-focused division would widen next year, implying that they could reach $15 billion to $20 billion in 2023.
There's a clearly a bull case for Meta Platforms at the current price, but given the huge risks it's taking in the metaverse, this isn't a slam dunk by any means. At this point, investors may want to approach the tech stock with caution.
