Citigroup says there’s a “compelling” reason to buy Meta Platforms (META) stock right now. And the club continues to back the tech giant as a solid long-term company at a reasonable valuation. In a research note to clients on Friday, Citi analysts reiterated their buy recommendation for the club stake while citing their own advertising tracking data that suggests the social media powerhouse is starting to make money from its short-form video capability known as Reels , earned his Instagram platform. “While macroeconomic challenges persist, we believe improved Reels monetization, newer ad formats and an increased focus on spend create a compelling risk/reward trade-off [the] Equities,” the analysts wrote. The Citi View study showed so-called ad loads for Meta’s Reels on Instagram, which saw 14% ad loads in September, up from 10% in August and 8% in July. An ad load percentage helps quantify the number of ads users are shown. Analysts from Citi tracked the number of reels that were ads compared to the number of reels that were posted by users on Instagram. While the analysts acknowledged that their ads have some limitations. tracking approach, they noted that their results roughly match meta-management’s forecasts of Reels’ monetization progress. Citi also found that Instagram users see ads earlier in their experience. (Meta’s Facebook platform also offers Reels, but Citi has not reported on those monetization efforts.) “When we were in the early stages of Instagram monetization ($1 billion in Q2 22 sales), we were impressed with the increase in ad load and ad quality and find that we were consistently confident We ran the first ad in Reels with the seventh video and we’ve seen remarkable adoption from both national brands and [small brand] Advertisers, according to our tracking,” the analysts wrote. Crucially, Citi believes Reels still has plenty of growth to come, saying its video offering accounts for just 4% of ad impressions on Instagram, even though it accounts for about 20% of the time users spend on the app, according to the Meta. That discrepancy suggests “significant potential for growth over time,” Citi argued. The Club Acquisition We think Citi’s positive results on monetizing Reels are noteworthy and encouraging. Reels is an important part of Metas nearly given the intense competition from video social media platform TikTok, so we’re keeping a close eye on any new information about its growth. Management has been positive about Reels, and CEO Mark Zuckerberg argued on the company’s July results that it’s looking into the short film -Form videos are “growing fast” and improving quarter by quarter. However, the current dilemma is that Reels has not been monetized at the same rate as the traditional feed. or so-called stories features on Instagram and Facebook. This means that users who spend more time on these two platforms watching reels are losing some of the time they could be spending on more highly monetized parts of the apps. Meta management has emphasized that pushing reels is the right long-term decision, even if it crowds out revenue from the main feeds or stories. And that makes a finding like Citi’s on growth in ad load particularly relevant. It suggests that the transition to Reels will continue to show incremental positive results, which should lead to financial gains over time. And like analysts at Citi, we’re also bullish on Meta’s increased focus on cost controls, including a report in late September that management plans to cut costs by 10% in the coming months. The tech giant’s newfound discipline is especially important in this current economic climate. With macroeconomic and competitive pressures posing risks to Meta’s revenue growth, cutting spending is one way to improve the bottom line — a point we touched on earlier this week. While it’s been a challenging year for Meta’s shares, we believe the stock’s valuation — about 13 times Friday’s expected earnings but well below the five-year moving average of 22 — remains in many of these headwinds. Meta was trading down about 3.65% at nearly $134 a share as of Friday afternoon. (Jim Cramer’s Charitable Trust is long META. For a full list of stocks, click here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling any stock in his charitable foundation’s portfolio. When Jim spoke about a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS GOVERNED BY OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION SHALL BE OR CREATED BY YOUR RECEIVING OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.
Investors are staying on the sidelines in the face of a broad sell-off in tech stocks this year. Shares of Facebook parent Meta are down more than 30% this year amid a worrying macro backdrop and weaker-than-expected earnings.
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Citigroup says there’s a “compelling” reason to buy Meta Platforms (META) stock right now. And the club continues to back the tech giant as a solid long-term company at a reasonable valuation.