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Needham on Thursday took a more neutral stance on social media and tech giant Meta Platforms (NASDAQ:META) and gave it a “hold” from its previously assigned “underperform” rating.
Analyst Laura Martin thinks the rating reflects Meta’s slowing labor productivity improvement, driven by rising headcount and higher costs per FTE, which she believes works against share price appreciation.
The research firm, however, expects the company to over-deliver on its prior revenue and margin estimates for Q2 and FY25 and forecasts that it will report 14% revenue growth and 6% EPS growth in 2025.
Needham chose not to turn bullish on Meta as the company’s capital budgets continue to rise. It also sees a structural cost disadvantage against rivals like Google (GOOGL) (GOOG), Amazon (AMZN), and Microsoft (MSFT), who own their cloud assets, and regulatory risks related to privacy, antitrust, and content moderation, among other reasons.
“We continue to worry about META’s rapidly rising CapX budgets, as it tries to catch up with companies much larger than itself in the LLM wars,” the research firm said in its July 3 note. “We estimate that META’s CapX will be $68B in FY25, up 84% y/y, the fastest growth among the hyperscalers. The ROIC on this CapX is uncertain, and the larger the spending, the more likely there is waste, in our view.”
META does not have a price target from Needham at the moment. Stock is up about 22% so far this year, while the benchmark S&P index is up nearly 6%.