Needham & Company worried Meta Platforms' core business has 'no terminal value,' like MySpace before it

Needham & Company analyst Laura Martin told investors in a note Friday that they are worried Meta Platforms (NASDAQ: META) has no terminal value in its core business, "like MySpace before it."

"We worry that META has no terminal value in its core business because negative network effects accelerate its decline," explained Martin, who has an Underperform rating on META shares.

"Since META does not control either its distribution or content, the best question to us is- Does META have a terminal value? We think it is possible that META is only worth the PV of its FCF without a terminal value. We note that META's FCF halved y/y in both 4Q22 and in FY22," she added.

Martin is also concerned by the tech giant's enormous investments in the Metaverse, and with META talking about the returns on its Metaverse investments in terms of 2030, Needham & Company argues that there is "no need to be in META today if its Metaverse spending will only pay off (maybe) in 2030."

Needham also believes influencers are abandoning Instagram for TikTok, with the average time spent on the META-owned social media platform falling, "putting downward pressure on META's ad revs."

"To win back its hit content creators, META must pay them more, implying rising customer acquisition costs and falling margins, in our view," said Martin. "Even if hit content creators return, Reels monetizes well below META's historical apps, which represents a headwind to core META's rev growth.

"If money follows time, and time follows content, then TikTok wins."

By Sam Boughedda

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