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It’s time to sell Meta until it figures out the metaverse, Needham says in downgrade

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Investors should sell shares of Meta until the social media company figures out the metaverse, according to Needham. Analyst Laura Martin downgraded shares of Meta Platforms to underperform from hold, noting that the company’s heavy investments in the metaverse — just as it expects slower revenue growth — may take too long to pay off. “Near-term, we worry that consensus estimates are too high, based on Meta’s promises of higher investments in the Metaverse at the same time it is purposely slowing its revenue growth to better compete with TikTok,” Martin said. “We worry that Meta’s enormous spending to create a new world called the Metaverse suggests it fears existential risks to its historical collection of businesses,” Martin added. Martin also cut her estimates for the company, believing cost growth will outpace revenue expansion for the next two years. The analyst lowered her revenue fiscal 2022 revenue forecast to $120.4 billion, which is up 2% year over year, and 6% below the previous estimate. Challenges to Meta’s advertising business, as well as greater competition from social media peers such as TikTok, are also hurting the stock. “We recommend investors remain on the sidelines while they assess several structural valuation risks including consumer behavior shifts, competition, moat degradation, regulatory risks and Metaverse investment risks,” Martin wrote. Shares of Meta fell more than 2% in Monday premarket trading. –CNBC’s Michael Bloom contributed to this report.

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