Meta will be the top-performing mega-cap internet stock in 2023 after sliding 64% last year, says Jefferies
- Meta will be the best-performing of mega-cap internet stock in 2023, Jefferies predicted on Monday.
- Revenue upside from the company's Instagram Reels will be among the drivers for the stock.
Meta will emerge as the top-performing mega-cap internet technology stock this year, said Jefferies, which foresees short videos on its Instagram property among pillars of strength after the shares ended 2022 among the worst-performers on the S&P 500.
The investment group made the call in a Monday note about Internet stocks to clients. It said its view is neutral on the sector, but it outlined its preference to be positioned in mega-caps such as Meta, Alphabet, and Amazon in 2023. It said sizable balance sheets at such companies should allow them to "withstand a prolonged deteriorating macro," while their core businesses should lead an eventual recovery.
"META will be the best-performing mega-cap driven by expense reductions and new monetization drivers," equity analysts led by Brent Thill said in the note. Jefferies has a price target on Meta of $155, suggesting a 19% upside from Friday's closing price of $130.02. Meta stock sank by 64% in 2022.
Jefferies said it sees three reasons to be positive on Meta stock in 2023.
"At 16x FY23 EPS, META is among the cheapest names in our coverage, but we believe there are multiple top and bottom-line catalysts to drive upside to the stock," said Thill.
Secondly, revenue upside is set to arrive from the company's "fast-growing" Instagram Reels short-videos feature, with a $3 billion revenue run-rate, as well as from Click-to-Messenger and Click-to-WhatsApp ads. Those ads combined represent a $10.5 billion revenue run-rate, the analysts said.
Thirdly, Meta has been focused on expense discipline that will likely provide further protection for its per-share earnings.
"We believe the ongoing privacy headwinds, competition from TikTok, and a deteriorating macro environment are likely well understood at current levels," Thill said.
Meta in November said it planned to cut more than 11,000 employees or about 13% of its workforce. CEO Mark Zuckerberg acknowledged he had mistimed big investments in the company.
Meta was among the S&P 500's top 10 largest percentage decliners in 2022 as tech stocks overall were slammed by soaring interest rates and as inventors worried about Meta's expensive push into a metaverse strategy that was at the heart of its rebranding from Facebook in 2021.