Tiktok's Ban Won't Affect Meta's Rally

Meta Platforms Inc. investors have a lot to look forward to in the second half of the year, even without the boost that a ban on Chinese rival TikTok would undoubtedly bring to the stock market.

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As the company pledges to become more efficient, the stock of the Facebook owner has soared 57% this year, consistently among the top five performers in the Nasdaq 100 Index, a testament to its commitment to being a more efficient business. According to Trade Algo, Meta plans to cut thousands more jobs in the coming months, resulting in a 2% increase in the stock price on Tuesday.

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Due to the change in strategy, the firm is more aligned with a market where investors are rewarding cost controls and earnings overgrowth, which is conducive to cost control and earnings growth. Despite the fact that the stock is still cheap in comparison to its own history, analysts are becoming increasingly bullish on the stock. A push to outlaw Chinese technology, including services like TikTok, would only increase such optimism.

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TikTok has taken an increasing share of digital ad dollars from other social media players due to its popularity among younger users, said Angelo Zino, senior equity analyst at CFRA Research. There are several companies that stand to benefit from a ban on the service in the US, including Meta, Snap Inc., and Alphabet Inc.'s YouTube business, he said.

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TikTok ban shifts to Senate bill that may get Biden's support

Based on the average of price targets compiled by Trade Algo, analysts are optimistic about the prospects for Meta stock over the next twelve months. They see the stock rising 13% in the next 12 months, based on the average of price targets compiled by Trade Algo. This is more than the 10% implied upside for Pinterest Inc. that is expected in the short term, as well as a 13% decline for Snap Inc.

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There is encouraging evidence of an improvement in sentiment among analysts as Meta - a measure of the consensus rating among analysts and a measure of buy, hold, and sell suggestions - has risen to 4.3 out of five, the highest rating since October and an increase from a recent low of 4.3.

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It is also worth noting that investors have become increasingly skeptical about the company's expensive pivot into the metaverse due to a plunge in its valuation over the last year amid earnings setbacks and investor skepticism forward earnings, well below its long-term average of 26.6 and a steep discount to the Nasdaq 100’s 23 times, according to data compiled by Trade Algo.

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The level of confidence in the company's profit outlook is also returning after having been pounded in 2022. Over the past month, the average estimate for Meta's adjusted 2023 earnings has risen by 2.2% over the previous month, which makes it one of the most notable companies in the online advertising sector. Alphabet's consensus has increased by 0.6% in the same period, while Snap has fallen by more than 40% as it struggles to maintain growth trends as it deals with weak growth conditions.

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Meta stock would only benefit from any decrease in the competitive landscape that would enable the company's stock price to increase. Trade Algo believes that such an outcome is unlikely, and believes that boosting revenue growth would be the key challenge to preventing TikTok from expanding in the US. However, legislation to block TikTok from expanding rose in a key House committee this month.

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“META would be well positioned to fill the hole left by a ban, but even without one, there is a strong investment case,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.

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Apple's market value has risen of late, reaching $2.5 trillion. With its 18% gain this year, the stock has cemented its position as the only US company with a value exceeding $2 trillion. The stock has been rated a buy for the first time in nearly six years by Goldman Sachs Group Inc.

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