Meta Faces Another Tough Quarter. One Analyst Sees More Trouble Ahead.

The company warned at the time that 2022 revenue would take about a $10 billion hit from

Apple
’s
(AAPL) recent moves to tighten privacy for iPhone users, making it harder for Facebook to target advertising based on consumer activity on apps and websites on their phones. The company also warned at the time that results could be affected by advertisers trimming ad budgets in the face of rising costs and product shortages, and it repeatedly cited growing competition from the short-video juggernaut TikTok.

Earlier this week, analysts at both RBC Capital and Oppenheimer trimmed estimates for Meta’s first-quarter results, due after the close of trading on April 27.

Adding to the pall over the stock, Evercore ISI analyst Mark Mahaney, as part of a broad look at the coming first-quarter earnings season, set a short-term Underperform rating on Meta shares. While he remains bullish on the company for the long term—he thinks conditions will begin to improve in the 2022 second half—Mahaney argues that Street consensus estimates remain too high for both the first quarter and the second quarter.

Mahaney writes that the Street is too bullish on Meta, given unfavorable exchange rates, a potential pullback on brand advertising in Europe, and limited monetization so far for Reels, the company’s TikTok clone. He also notes that the company faces a “very tough” second-quarter comparison, and that it will take some time before the company fully implements a response to Apple’s ad-privacy changes. He thinks the Street consensus on first-quarter revenue—which calls for 9% growth on a year-over-year basis—seems too high, and he sees additional risk for the second quarter.

Meanwhile, Mahaney set a short-term Outperform rating on

Lyft

(LYFT). He writes that Street estimates on the ride-sharing company are too conservative, “based on a large batch of positive recover data points,” including improving ride-share data in New York and Chicago, rival

Uber Technologies

‘ (UBER) recent upbeat business update, Sensor Tower data on app downloads, and various other measures. He also notes that since Lyft (unlike Uber) serves only North America, the company avoids both foreign-exchange exposure and a potential softening in Western Europe.

Overall, Mahaney writes, he remains cautious on the internet sector for the near-term. He sees elevated risks related to inflation, foreign-exchange headwinds, and potential weakness in European consumer demand tied to both regional recession risk and the Russian invasion of Ukraine. 

His top picks remain

Amazon.com

(AMZN),

Booking.com

(BKNG), and

Alphabet

(GOOGL), as well as

Spotify Technology

(SPOT),

Roku

(ROKU), and Lyft.

Meta shares were down 1.1%, at $212.64, in recent trading, while Lyft was up 1.8%, at $35.44. The

S&P 500
was down 0.4%.

Write to Eric J. Savitz at eric.savitz@barrons.com