Needham downgrades Meta from sell to neutral: Massive capital expenditures raise concerns
Needham upgraded Meta Platforms' rating from "Market Perform" to "Hold," with analyst Laura Martin noting that slowing employee productivity growth and rising per capita costs are limiting the upside potential for the stock price. Although it is expected that Meta will exceed revenue and profit margin expectations, with revenue projected to grow by 14% and earnings per share by 6% in 2025, it still faces challenges such as a surge in capital expenditures, structural cost disadvantages, and regulatory risks. Capital expenditures are expected to reach $68 billion in fiscal year 2025, an increase of 84% year-on-year
According to the Zhitong Finance APP, Needham published a research report upgrading the rating of Meta Platforms (META.US) from "Market Perform" to "Hold." Analyst Laura Martin believes that this rating adjustment reflects the current situation of slowing productivity growth among Meta employees. She argues that factors such as an increase in total employees and rising per capita costs are constraining the potential for stock price increases. However, the research institution also predicts that Meta will exceed its revenue and profit margin expectations for the second quarter and the fiscal year 2025, forecasting a 14% revenue growth and a 6% increase in earnings per share in 2025.
Needham explains that the neutral rating is primarily based on the following considerations: Meta's capital budget continues to rise; it faces structural cost disadvantages compared to competitors like Google (GOOGL.US), Amazon (AMZN.US), and Microsoft (MSFT.US), which have their own cloud assets; and it is facing regulatory risks related to privacy protection, antitrust issues, and content moderation.
"We remain concerned about Meta's rapidly expanding capital expenditure budget as it tries to catch up with larger competitors in the large language model race," Needham pointed out in its report on July 3rd, "It is expected that its capital expenditures for the fiscal year 2025 will reach $68 billion, an increase of 84% year-on-year, far exceeding other mega-scale tech companies. The capital return on these investments is uncertain, and the larger the expenditure, the higher the risk of resource waste."
Currently, Needham has not set a specific target price for Meta. So far this year, Meta's stock price has risen approximately 22%, while the S&P 500 index has increased by about 6%
