As the stock price plunged last week due to concerns over the deterioration of the US social networking service (SNS) company Snap’s earnings, the entire market pulled down, and attention is focused on Meta and Alphabet’s earnings to be released this week.
As advertising spending is expected to drop sharply due to the economic downturn, it is widely observed that Alphabet and Meta, which are highly dependent on ad sales like Snap, will have difficulty avoiding an earnings shock. Experts’ earnings forecasts are also being rapidly downgraded.
However, if you are looking for a long-term investment, Wall Street veterans advise that it would be wise to use the stock price decline after this earnings release as an opportunity to buy at a low price.
2Q earnings “not good”
Experts predict that Facebook’s parent company, Meta (stock name: META) and Google’s parent company, Alphabet (GOOGL), will perform poorly in the second quarter.
Recently, major investment banking (IB) analysts such as Morgan Stanley and Credit Suisse lowered their earnings forecasts for Meta and Alphabet one after another.
The dollar value, which has been on the rise this year, is also expected to be detrimental to the performance of these companies.
According to investment media Barron’s, experts predicted that Meta’s sales in the second quarter would be $29 billion, the median of the company’s proposed $28-30 billion, and that in the third quarter, sales were $30.7 billion. Sales forecast for this year is $125 billion and next year is $143 billion.
Mizuho Securities analyst James Lee also said that Wall Street forecasts are high, and he forecasted Meta’s sales of $28.5 billion in the second quarter and $29.4 billion in the third quarter. The forecast for next year was set at $120.7 billion, down $6 billion from the previous year, and the sales forecast for 2023 was also lowered by $17 billion to $130.9 billion.
For Alphabet, analysts forecast revenue of $70.2 billion in the second quarter, up nearly 13% year-over-year, much slower than the 62% increase recorded a year earlier, according to Investors.com. Earnings per share fell 6% to $1.28.
Experts also predicted that YouTube sales growth would slow to 7%, half of the 14% recorded in the first quarter. Sales growth recorded a year ago was 84%.
Long-term investment outlook is ‘clear’
Meanwhile, Wall Street analysts are generally optimistic about the long-term outlook for Meta and Alphabet. Although the current business environment is burdensome, it is evaluated that the physical strength itself is different from Snap, where the stock price plunged after this earnings announcement.
Recently, CNBC evaluated that Meta and Alphabet accounted for significantly more than Snap in the digital advertising market, and evaluated that it was advantageous in that it competed for first place in advertising because it had a wider user base than Snap.
The company’s share buybacks based on huge cash are also positive for investors. Alphabet bought back $13 billion in the first quarter of this year alone, and in April, the board approved a $70 billion buyback program. Meta also bought back $9.5 billion worth of treasury stock in the first quarter of this year, following the purchase of $44.54 billion worth of treasury stock last year alone.
Even IBs, who have lowered their earnings forecasts, are recommending a ‘buy’ recommendation.
According to Tipranks, an investment media, the consensus of Wall Street analysts (38 people who have offered investment opinions in the past three months) on Meta is ‘Moderate Buy’, with a target price of $259.78, 56% It was evaluated that there was still room for a close upside.
Justin Post, an analyst at Bank of America (BofA), emphasized, “It is true that the burden of reducing advertising spending has increased since May, but it is in a better state than Snap in that it has a solid advertising platform and a broad advertiser base.”
In the case of Alphabet, in the TipRanks survey, the consensus of Wall Street analysts (32 who presented an investment opinion in the past three months) was ‘Strong Buy’, and no one recommended ‘Sell’. The target price of Alphabet suggested by them was $149.13, which was evaluated as more than 38% upward.
On the same day, Forbes revealed that TikTok employees in China repeatedly accessed American user data, and if the level of checks on TikTok rises ahead of the US midterm elections in November, Meta and Alphabet may benefit from weakening competition. argued that there would be
He emphasized that even if the results are disappointing, it will be a good low-priced buying opportunity if we approach it from a long-term investment perspective.