Investors Should Hit the Sell Button on Meta Platforms Stock

Stocks to sell

Amid multiple signs of a macroeconomic slowdown in the U.S. and increased competition in the advertising space, I advise investors to sell Meta Platforms (NASDAQ:META) stock. Also importantly, there is no indication that the company has a “killer” AI app.

As a result, the Street does not seem very enamored with the company at this point and several insiders have sold large amounts of the company’s shares in recent months.

A Macroeconomic Slowdown and Increased Competition

Multiple economic data points indicate that the U.S. economy has been slowing recently. For example, the ISM’s Services Purchasing Managers’ Index for June came in at 48.8, well below analysts’ average estimate of 52.7. Importantly, any reading below 50 represents a contraction for the sector. It was also the index’s lowest level since April 2022.

Meanwhile, the Atlanta Fed’s second-quarter GDP growth outlook fell to 1.5% recently, down from slightly over 4% in mid-May. And finally, the number of private-sector jobs added by the U.S. economy dropped for the third straight month in June, according to ADP.

Nearly all of Meta’s revenue is derived from advertising and ad spending tends to drop a great deal during economic slowdowns because they are viewed as non-essential. In the first quarter, for example, $35.6 billion of the firm’s $36.455 billion of revenue was derived from ads. Given these points, I believe the slowing U.S. economy could have a significant, negative impact on Meta’s financial results in the medium term.

On the competition front, Meta is coping with the rising strength of Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) in the ad sector. In the fourth quarter of 2023, Amazon’s ad revenue soared 27% versus the same period a year earlier to $14.6 billion. And according to eMarketer, the e-commerce giant’s ad sales will surge nearly 25% in 2024.

Meanwhile, Netflix is becoming a significant player in the space. Specifically, eMarketer expects the company to generate almost $1 billion of ad sales this year and it predicts the figure will jump to about $1.35 billion in 2025.

No “Killer” AI App

The AI applications that Meta is working on appear to be rather undifferentiated. For example, the firm is developing an app that will allow users to edit photos. But Adobe (NASDAQ:ADBE) already has such an offering.

Similarly, Meta has developed an assistant that” is capable of complex reasoning, following instructions, visualizing ideas and solving nuanced problems.” It also allows users to research topics, get how-to advice and learn new hobbies. Additionally, the system can generate images. But other than teaching users hobbies, it’s not clear how Meta’s AI assistant is different from or superior to the AI assistants being offered by Alphabet (NASDAQ:GOOG, GOOGL) and Microsoft (NASDAQ:MSFT).

Moreover, according to zapier, “ChatGPT Plus is miles better than Meta AI.” The website added that “ChatGPT is a more powerful chatbot than Meta AI.” Finally, a detailed comparison of ChatGPT and Meta AI by List of Information revealed few major differences between the tools.

The Street and Insiders Do Not Seem Thrilled With Meta Stock

Meta Platforms stock was little changed between April 5 and July 9. The mediocre performance indicates that the magic has worn off for the name. Perhaps many large investors agree withSeeking Alpha columnist Dair Sansyzbayev. Using a discounted cash flow model, Sansyzbayev determined that Meta Platforms stock is unlikely to gain much going forward.

And there are indications that a number of the company’s insiders may also agree with that assertion. That’s because CEO Mark Zuckerberg and two other insiders sold sizeable amounts of the shares between June 17 and June 26. During that period, Zuckerberg himself unloaded $43.4 million of the shares, according to data presented by Sansyzbayev.

On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

Articles You May Like

3 Edge Computing Stocks That Could Grow Your Wealth
Intel Stock Analysis: AI Surge and Political Winds Fuel Bullish Outlook
7 Growth Stocks That Could 5X in 5 Years
7 Semiconductor Stocks Surging on the Back of the Tech Boom
3 Semiconductors Stocks to Buy Now: Q3 Edition