Shares of Meta Platforms are currently trading close to record highs, but analysts at Roth MKM are cautious about the company’s upcoming earnings report. The analysts are concerned about advertising spending from Chinese e-commerce players, Temu and Shein, which have been major growth drivers for Meta in recent quarters. Roth MKM believes that buyside expectations for a strong earnings report have minimal margin for error, and they expect that Meta’s Asia-Pacific revenue growth could be under pressure in the upcoming quarter.
Roth MKM pointed to Temu parent PDD Holding’s slower marketing spend and second-quarter revenue miss as indicators that ad budgets from Chinese players like Temu and Shein could soften further. The firm also noted that these brands are becoming increasingly known through word of mouth rather than social platforms, which could impact their advertising spend on Facebook and Instagram. Despite these concerns, Roth MKM raised its price target on Meta to $620 a share from $550, maintaining a buy rating on the stock due to their bullish outlook in the medium and long term.
Meta Platforms issued a warning during its July earnings call about annual revenue growth slowing in Q3 as it lapped strong gains from China-based advertisers. The company has seen strong performance recently, with shares up more than 14% over the past month. While a pullback in Chinese ad spending from Temu and Shein is notable, Meta’s ability to innovate and leverage artificial intelligence has kept the company moving forward. Meta’s investments in AI are driving user engagement and making its ads more effective, which adds value to potential advertisers.
Despite the potential risks associated with a decline in Chinese advertising, Meta has levers it can pull to manage the situation, including increasing ad placements on its Reels platform. Roth MKM believes that there is minimal margin for error in Meta’s upcoming quarter, but they have a disciplined approach to managing their position and have taken profits in late September to guard against potential disappointments. Meta’s long-term outlook remains positive, and the company’s ability to innovate and leverage AI continues to drive user engagement and advertising effectiveness.
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