Mizuho analyst James Lee maintained a Buy rating on Meta Platforms Inc META with a price target of $470, up from $400.
The analyst noted that the setup is constructive, with three catalysts ahead.
First, FY24 consensus revenue growth of 13% appears conservative against his expected 22% exit rate, considering drivers including improved monetization in Reels and FB Shops and increased demand from Chinese e-commerce advertisers.
Lee’s checks show that advertising recovered quickly from geopolitical uncertainties in early October.
Furthermore, there was surprising strength in holiday shopping, share gains of Chinese advertisers such as Shein and Temu, and the success of Shop Ads with its notable partnership with Amazon.Com Inc AMZN.
As a result, he expected 4Q23 revenues to come in above consensus at 21%. FY24 consensus revenue growth of 13% at that exit rate appeared conservative, considering tailwinds from product improvements, increased engagement (AI content distribution), and rising demand for Chinese advertisers.
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Second, Lee expected operating expenditure guidance to decrease throughout FY24, consistent with historical trends, with leverage on headcount as the primary driver.
Based on his estimation, the operating expenditure growth guidance of about 15% YoY for FY24 reflected the increasing headcount for core operations and Reality Labs.
As a result, he noted that Meta has much flexibility in managing operating expenses this year and, therefore, could follow a similar path to prior years of lowering its operating expenditure guidance throughout the year.
Lastly, the analyst noted that Messaging is an attractive option and estimated WhatsApp could incrementally increase Meta’s revenue base by a third over time using AI to automate customer service.
With new ad products and AI to automate customer service, Lee noted that the messaging platform could achieve the company’s international ARPU of $20 and increase the company’s revenue base by 30%.
With a positive outlook, Lee raised his FY25E EBITDA by nearly 5% and introduced his FY26 estimated EBITDA of $107 billion.
At the same time, he rolled out his price target valuation to his FY26 forecast from FY25E. As a result, he boosted the price target, based on 11x his new FY26 EBITDA forecast, with the target multiple remaining unchanged.
The analyst projected Q4 revenue and EPS of $39.09 billion (versus consensus $39.02 billion) and $5.09 (versus consensus $4.96).
Price Actions: META shares traded lower by 0.10% at $370.11 on the last check Thursday.
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