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The Ratings Game

July 5, 2022, 11:08 a.m. EDT

Why Facebook parent Meta is still a ‘top recession stock’ despite stark warnings from executives

By Emily Bary

Meta Platforms Inc. executives reportedly have warned of various pressures on their business, but the Facebook parent company still looks relatively well positioned for a tougher economic backdrop, according to a Bank of America analyst.

Chief Executive Mark Zuckerberg told executives to brace for more aggressive evaluations and to anticipate tackling more work with fewer resources, according to the New York Times. Separately, Chief Product Officer Chris Cox warned of “fierce headwinds” in an employee memo, per the report. (Meta (NAS:META) didn’t immediately respond to MarketWatch’s request for comment on the reports.)

See more: Mark Zuckerberg issues dire economic warning to Meta employees

Bank of America’s Justin Post wrote over the long weekend that he saw the reports “as amounting to a 2H revenue warning, which may have been expected by the Street,” though he still has a bullish view on Meta’s stock. The company is said to be cutting spending, a move that Post expects could relieve some pressure on the revenue line.

“We believe Meta has enough investment spending…and bonus accrual flexibility that could enable it to grow earnings in case of a moderate recession next year,” he wrote in his note to clients. Post also sees various growth areas for Meta, including the potential for ramping monetization of the Reels and shopping platforms.

The company could also benefit as it laps a period when it began to see impacts from Apple Inc.’s changes to its Identifier for Advertisers (IDFA) policies, which made it easier for consumers to opt out of having their activity tracked by third-party apps like the ones Meta runs.

Overall, Post views Meta as “a top recession stock” within the internet sector.

“News flow for the Internet group has increasingly turned negative, but we believe relative positives for Meta include lower expectations (post IDFA headwinds, Snap’s miss, and recent management comments), 2H incremental revenue drivers outlined above, and more expense flexibility than peers, plus healthy margins that should minimize cash flow concerns,” he wrote.

Meta shares are up 1% in Tuesday morning trading. They’ve lost 30% over the past three months as the S&P 500 (S&P:SPX) has dropped 17%.

Link to MarketWatch's Slice.