Technology and social media giant Meta Platforms (NASDAQ:META) delivered stronger-than-expected third-quarter earnings. Despite the solid earnings beat and stellar growth across its family of apps, Meta stock fell about 3.35% in Wednesday’s after-hours trading. We suspect this drop reflects management’s forecast of widening losses at the Reality Labs division. Further, Meta warned about increasing legal and regulatory headwinds, which didn’t sit well with investors.
In Q3, Meta’s Reality Labs segment, which produces AR (augmented reality) and VR (virtual reality) hardware and software, delivered revenue of $210 million, which declined by 26% year-over-year due to lower Quest 2 sales. The division reported expenses of about $4 billion and posted an operating loss of $3.7 billion.
Looking ahead, Meta’s CFO Susan Li expects operating losses for Reality Labs to increase substantially year-over-year in 2023. This is due to the company’s ongoing product development efforts in AR and VR and investments to scale its ecosystem further. Notably, Reality Labs delivered an operating loss of $13.72 billion in 2022.
In addition to the widening losses at Reality Labs, Li warned that growing legal and regulatory headwinds in the U.S. and the European Union could significantly impact the company’s operations and financial results. Li added, “Of note, the FTC is seeking to substantially modify our existing consent order and impose additional restrictions on our ability to operate. We are contesting this matter, but if we are unsuccessful it would have an adverse impact on our business.” With this backdrop, let’s look at what the analysts recommend for Meta stock.
What is the Prediction of Meta stock?
Despite widening losses at Reality Labs and legal and regulatory headwinds, Goldman Sachs analyst Eric Sheridan reiterated a Buy rating on Meta stock with a price target of $384 on October 26. Sheridan sees Meta as well-positioned to benefit from the momentum across its products, including “Reels, click-to-messaging Ads and AI including Advantage+ adoption.”
Overall, the user engagement on Facebook and Instagram remains strong, which will drive Meta’s future revenue. Moreover, its focus on leveraging AI-powered features to drive engagement and improve monetization augurs well for growth. Thanks to these positives, Wall Street analysts are bullish about Meta stock.
With 41 Buy and two Hold recommendations, Meta stock sports a Strong Buy consensus rating. The analysts’ average price target of $378.72 implies 26.44% upside potential from current levels.
