There’s a “compelling” case for buying up stock in Meta Platforms (META) right now, according to Citigroup. And the Club continues to back the tech giant as a solid long-term play at a reasonable valuation. In a research note to clients Friday, Citi analysts reiterated their buy rating on the Club holding, while citing their own ad-tracking data that suggests the social media powerhouse is gradually making money from its short-form video feature, known as Reels, on its Instagram platform. “While macro challenges persist, we believe improved Reels monetization, newer ad formats, and a greater focus on expenses create a compelling risk/reward in [the] shares,” the analysts wrote. The Citi view The research showed that so-called ad loads have been on the rise for Meta’s Reels on Instagram, which saw 14% ad loads in September, up from 10% in August and 8% in July . An ad load percentage helps quantify the number of advertisements shown to users. Citi analysts tracked the number of Reels that were advertisements, compared with the number of Reels posted by users on Instagram. While the analysts acknowledged there are some limitations to their ad- tracking approach, they maintained their findings roughly match what Meta management has forecasted about its Reels monetization progress. Citi also found Instagram users are seeing ads earlier in their experience. (Meta’s Facebook platform also offers Reels, but Citi did not report on those monetization efforts .) “While still early days in Instagram monetization ($1 Billion revenue run-rate during 2Q22) we were impressed by the increase in ad load and ad quality and note we were consistently se rved the first ad in Reels by the 7th video, and we have seen notable adoption of both national brands and [small brand] advertisers, per our tracking,” the analysts wrote. Crucially, Citi believes there is plenty of growth for Reels ahead, saying the video offering accounts for only 4% of ad impressions on Instagram despite, according to Meta, making up around 20% of the time users spend on the app. That discrepancy suggests “significant run-way for growth over time,” Citi argued. The Club take We think Citi’s favorable findings on Reels monetization is noteworthy and encouraging. Reels is an important part of Meta’s near- term story given the intense competition presented by video social media platform TikTok, so we pay close attention to any new information about its growth. Management has spoken positively about Reels, with CEO Mark Zuckerberg arguing on the company’s July earnings call that engagement with the short -form videos is “growing quickly” and improving on a quarter-over-quarter basis. The current predicament, however, is that Reels has not monetized at the same rate as the traditional feed- or so-called stories features found on Instagram and Facebook. That means that as users spend more time on those two platforms watching Reels, it partially takes away the time they could be spending on higher-monetizing parts of the apps. Meta management has stressed that pushing Reels, even if it displaces revenue from the main feeds or stories, is the right long-term decision. And that’s what makes a finding like Citi’s on ad-load growth particularly relevant. It suggests that the Reels transition is continuing to show incrementally positive results, which should lead to financial gains over time. And like Citi analysts, we also view favorably Meta’s heightened focus on controlling expenses, including a report in late September that said management planned to trim costs by 10% in the coming months. The tech giant’s newfound discipline is especially important in this current economic environment. As macroeconomic- and competitive pressures present risks to Meta’s topline revenue growth, cutting expenses is a way to help its bottom line — a point we made earlier this week . While it’s been a challenging year for Meta’s shares, we believe the stock’s valuation — around 13 times forward earnings Friday, but well below its five-year average of 22 times — bakes in many of those headwinds. Meta was trading down roughly 3.65%, at nearly $134 a share, in mid-afternoon trading Friday. (Jim Cramer’s Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Investors are staying on the sidelines amid a broad selloff in tech stocks this year. Shares of Facebook parent Meta are down more than 30% this year amid a troubling macro environment and weaker-than-expected results.
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There’s a “compelling” case for buying up stock in Meta Platforms (META) right now, according to Citigroup. And the Club continues to back the tech giant as a solid long-term play at a reasonable valuation.
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