Needham has upgraded its rating for Meta Platforms (META, Financial) from "Underperform" to "Hold." Analyst Laura Martin cites a slowdown in employee productivity growth as a key reason for this change. While the increase in employee numbers and rising per capita costs are seen as limiting factors for stock price appreciation, Needham forecasts that Meta will exceed its revenue and profit margin expectations for the second quarter and fiscal year 2025. Revenue is projected to grow by 14% and earnings per share by 6% in 2025.
Despite the upgrade, Needham maintains a neutral stance due to Meta's rising capital expenditures, structural cost disadvantages compared to competitors like Google (GOOGL), Amazon (AMZN), and Microsoft (MSFT) that possess their own cloud assets, and regulatory risks related to privacy, antitrust, and content moderation. The firm expresses concern over Meta's rapidly increasing capital expenditure in its pursuit to catch up with larger competitors in the large language model race. Capital spending is expected to reach $68 billion in fiscal year 2025, an 84% year-over-year increase, raising uncertainties about the return on these investments and potential resource wastage.
