Meta’s Rally Doesn’t Need a Hand From TikTok Ban

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A good year for Meta Platforms Inc. investors has the potential to get better still — even without the boost that a ban on Chinese rival TikTok would undoubtedly bring.

The Facebook-owner’s stock has surged 54% this year, the fifth-best performer among components of the Nasdaq 100 Index, as the company pledges to be a more efficient business. Those gains look likely to extend on Tuesday after Bloomberg reported that Meta plans to cut thousands more jobs.

The shift in strategy puts the firm more in tune with a market where investors are favoring cost controls and earnings over growth. And with the stock still cheap relative to its own history, analysts are turning increasingly bullish. Such optimism would only increase should US lawmakers succeed in a push to outlaw Chinese technology, including services like TikTok.

With its popularity among younger users, TikTok “has been taking an increasing pie of the digital ad dollars from other social media players,” said Angelo Zino, senior equity analyst at CFRA Research. Should the service be banned in the US, the biggest beneficiaries would be Meta, Snap Inc., and Alphabet Inc.’s YouTube business, he said.

Whatever the outcome, analysts are upbeat on the outlook for Meta stock, which they see rising a further 16% over the next 12 months, based on the average of price targets compiled by Bloomberg. That’s greater than the 11% implied upside for Pinterest Inc. and an 8.9% decline expected for Snap.

In a sign of how sentiment has improved, the consensus recommendation for Meta — a measure of buy, hold, and sell ratings among analysts — has risen to 4.3 out of five, the highest since October and up from a recent low of 4.

The growing optimism is backed by a valuation that plummeted last year amid earnings setbacks and investor skepticism about the company’s expensive pivot toward the metaverse. Even after its recent rally, Meta trades at 15 times forward earnings, well below its long-term average of 26 and a steep discount to the Nasdaq 100’s 23 times, according to data compiled by Bloomberg.

Confidence in the profit outlook is also returning after being pummeled in 2022. The average estimate for Meta’s adjusted 2023 earnings has risen by 4.4% over the past month, making it a standout among companies tied to the online advertising market. The consensus for Alphabet is down 1.9% in the same period, while Snap’s has collapsed more than 40% as it grapples with weak growth trends.

Any lessening of the competitive landscape would only serve as an added boost for Meta stock. Legislation to block TikTok in the US advanced through a key House committee this month, although Bloomberg Intelligence ultimately sees such an outcome as improbable, and sees boosting revenue growth as a key challenge.

“A ban would present a meaningful opportunity for Meta to fill the void, but even if there isn’t one, the investment case remains robust,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.

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