Meta: KeyBanc raises price target on ad growth

KeyBanc has adopted a bullish stance on Meta's (META) growth prospects. Justin Patterson, Keybanc managing director, has lifted his price target on Meta to $540 from $475, citing sustained advertising momentum. Patterson joins the Morning Brief to discuss his outlook on the tech giant.

Patterson highlights that Meta's ad revenue is "accelerating sequentially" despite intensifying competition, indicating that "demand for Meta's advertisements remains very high." He notes that advertisers are willing to bid at higher rates to reach Meta's user base, emphasizing that "the returns for this AI advertising cycle are still very strong."

Beyond advertising, Patterson points out Meta's broader AI benefits. He observes increased engagement across Meta's platforms due to AI investments, as well as ad-tech refinement boosting returns for advertisers. These factors, he argues, are contributing to Meta's overall gains in the market.

Furthermore, with TikTok facing a potential ban, Patterson suggests that Meta's platforms could attract users needing to reallocate their social media time.

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This post was written by Angel Smith

Video transcript

Meta shares are up over 40% so far this year as investors double down on the A I trade.

And our next guest says that there's more room to run, raising its price target from $475 to $540 driven by a momentum, Justin Patterson managing director joins us now, Justin, great to speak with you here.

OK.

So take us into the thesis here and what's what's shifted in the ad landscape in terms of what you're seeing for the, the load demand that would benefit meta versus some of the other competitors.

Yeah, definitely.

And thanks for having me.

So when you look at just pricing data, uh so data just on what a meta advertising prices are going for right now, they're actually accelerating sequentially.

So you saw about an eight point improvement from Q one to Q two quarter date and that's actually against a tougher comp.

So what that means is that demand from meta's advertisements remains very high.

It's an auction.

You're seeing more advertisers bid higher rates to reach uh meta's customers.

And that just really shows you that the returns from this A I advertising cycle are still very strong.

So we looked at the second half of the year.

We don't think the deceleration in growth against some tough comps will be as severe as investors think.

And we think there's still potential for mid teens growth in 2025.

When you roll that together, that speaks to earnings upside free cash flow upside even against all this Capex investment.

Let's talk about that Capex investment because you mentioned in your case here that meta is investing aggressively in A I and that could improve the core business.

We talk a lot about all of these companies investing A I.

What is it about what me is doing specifically under the hood that you feel is bullish signal for the company?

Yeah, I think it's a couple of things right now.

First, you're already seeing the benefits in terms of engagement.

So if you go back to the Q one call meta in several stats in terms of just how this recommendation engine powered by A I is driving more video consumption, more time spent on Metta sites.

And that just means there's a lot more ad impressions to serve.

Uh The second piece that's really happening is under the hood on the ads side.

So as you really refine what type of ads people are seeing, provide them more relevant ads that really boosts the return for the advertiser and encourages them to spend a little bit more on ads which is what we're seeing in that pricing trend right now.

So we really think there's a just powerful flywheel going on at meta as these capital investments get some returns, you're seeing better revenue growth come in, just fuels a little more investment in terms of data centers and just, you know, on this while we've got you, there's the larger concern about what will happen if Tik Tok does get banned.

If there is no suitor that steps in and purchases and allows them to remain operable here in the US.

What does that mean for Meadow?

What's that mean for the advertising windfall that they may start to get from that too?

Yeah, it's a great question.

So if you just consider Tik Tok, you're getting roughly 90 minutes of time spent per day on the tiktok app that has to get real located somewhere.

So when we look at it, we generally think that meta uh alphabets of youtube and Snap are the biggest winners from that.

Um Just because they all have short form video apps and that time spent will go back to the Instagrams, the uh Facebook reels, the youtube shorts, so on and so forth.