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Citi Raises Price Target on Meta on Strong Rebound in Online Advertising Market
Meta's Reels Driving Citi's Bullish Sentiment
Citigroup has raised its price target on Meta Platforms to $360 per share, the highest on Wall Street, from $315. This is due to Citigroup's belief that the online advertising market is set for a strong rebound, which is already evident within Meta Platforms. The new target represents upside of more than 29% from Monday's close. Analyst Ronald Josey noted that ad loads on Meta's Reels product reached 17% quarter to date, and 18% in June alone. He projected Meta's ad revenues to grow 14% year-over-year in 2024 with Reels generating approximately $10.5 billion in revenue, but continued adoption of Click-to-Message, newer Advantage+ verticals, the potential around AI Agents, and a more stable/improving digital ad environment could support greater, higher margin ad growth going forward.
Strong Advertising Output on Reels and Takeaways from Cannes-Lions Festival of Creativity
The strong advertising output on Reels, coupled with the firm's takeaways from attending the Cannes-Lions Festival of Creativity, underpins Citi's overall view that the online ad market is on course to improve steadily. According to Josey, while stability has been a broader theme this year, given at/near record advertiser attendance at Cannes, there is an increased willingness among marketers to partner and deploy ad budgets on those platforms at scale that are investing in ads innovation.
Meta's Ride on the Wave of Investor Excitement over AI
Meta's CEO Mark Zuckerberg has called 2023 the "year of efficiency" as the company has moved to reduce costs. Meta has also ridden the wave of investor excitement over artificial intelligence, soaring more than 131% this year. Citi reiterated the stock as its top pick in its basket of North American internet coverage.
Potential for Greater, Higher Margin Ad Growth Going Forward
Citi thinks that the continued adoption of newer verticals, the potential around AI agents, and a more stable/improving digital ad environment could support greater, higher margin ad growth going forward. The bank's bullish sentiment on Meta's Reels product is driving the advancement of this belief. With Meta's significant growth over the past year, the online advertising market is sure to see steady growth and positive movement toward greater efficiency and cost reduction for its companies.
The news that Citigroup has raised its price target on Meta Platforms due to the projected growth in the online advertising market bodes well for new businesses entering the advertising market. With Citigroup projecting continued growth in ad revenues and a more stable and improving digital ad environment, new businesses that focus on innovative advertising technologies could benefit from Meta's success. Additionally, with Meta investing heavily in artificial intelligence and newer Advantage+ verticals, the potential for higher margin ad growth is even greater.
Another takeaway for new businesses is that Meta's success is driven by its Reels product, which has seen strong advertising output and quarter-to-date growth in ad loads. This indicates that new businesses focusing on innovative and engaging advertising content that can be delivered via new technologies could find success in the online advertising market.
However, it is important to note that while the online advertising market is set to rebound strongly, competition in this space is already high. Therefore, new businesses entering this market need to have a strong and differentiated approach to be successful. Nevertheless, the growth projections for Meta and the online advertising market as a whole indicate that there is significant potential for new players to find success and contribute to the market's growth in the coming years.