Good Time to Sell Facebook

Meta Platforms Inc. (FB) has rallied 23% with the broad averages in the last two weeks, ending a vicious high volume decline. The stock gapped down an astounding 78 points in February after missing Q1 2022 profit estimates and lowering Q2 revenue guidance, due to falling ad income as a result of new Apple Inc. (AAPL) iOS 13 privacy features. Buying interest dropped to the lowest low since May 2020 at the same time, wiping out nearly two years of shareholder growth.

Advertising Recovery Ahead?

Broad market forces powered the March rally but there may also be bullish news on the horizon. According to industry publication The Information, Meta advertisers are seeing improved results with their purchases and are increasing spending budgets. No one knows why ads are performing better but the company could offer insight at the April 27 earnings release. Of course, it’s also possible the publication has all the facts wrong, given what we know about Apple privacy options.

Morgan Stanley analyst Brian Nowak lowered his Meta target to $325 earlier this month, noting that “as even after our potentially aggressive Reels adoption (and 55% revenue share) we find FB trading at about 7 times our 2023 EBITDA. That said, we are tactically mindful that outperformance may take time, estimate adjustments (we find ourselves below/in-line with Street ’22/’23 revenue), and direct evidence that FB will indeed successfully monetize Reels.”

Wall Street and Technical Outlook

Wall Street consensus has deteriorated since the last earnings report, dropping to an ‘Overweight’ rating based upon 33 ‘Buy’, 5 ‘Overweight’, 17 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $220 to a Street-high $425 while the stock is set to open Wednesday’s session just $8 above the low target. This target range looks too high because the stock is unlikely to trade back above the $300 level anytime in 2022.

Meta Platforms broke out above 2018 resistance at 210 in May 2020, entering a powerful uptrend that stalled near 300 in August. It cleared that barrier in April 2021, ahead of a final rally wave that hit an all-time high at 384.33 in September. The subsequent decline shed 52% into March, ahead of a bounce that faces a buzzsaw of selling pressure as it approaches the massive selloff gap between 248 and 323. In addition, the uptick has just reached 50-day moving average resistance, further limiting upside potential.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.