RBC Capital Reiterates Outperform Rating on Meta, $810 Price Target

RBC Capital analyst Brad Erickson reiterated an Outperform rating and $810.00 price target on Meta (NASDAQ: META).

“META’s guide missed expectations warranting the downward AH move, but the conference call commentary presents an intriguing debate for seeing some bigger picture silver lining.

Starting with the objective/ pragmatic: META hit the 33% Q1 revenue bogey but the 28% high-end of Q2 guide missed buy-side and raising capex $10B on higher memory costs ultimately isn’t a recipe for success.

With core business benefits largely coming by applying model enhancements (content recommendation, ad targeting etc), the revenue decel along with directional FCF trends with the existing TAM makes it hard to argue for multiple expansion.

More positively, we found management wading into the territory of our ‘Born on Meta’ thesis where it spoke as much to businesses using MSL’s model advancements as to users along with an implied ability to subscribe for compute to create on META (called out 10M weekly convos with businesses on META up from 1M earlier this year).

Ongoing model optimization callouts of Muse Spark, Lattice, Gem etc should continue to grow engagement, conversion etc, but as a bull case, we’re especially intrigued at MSL’s frontier efforts to create new SMB use cases as an improving rationale for the capex.

Raising rev/EPS, lowering FCF slightly on the higher capex.

Fundamentally, META’s in a bit of a cooling off period given the tougher comps/decel, but with industry-leading growth at scale, solid evidence of frontier model development and rising optionality with new SMB use cases, there’s still much to like about the story, in our view.”

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