PremiumWhat's The Matter With Meta: Goldman Explains The Stock's Ongoing Slump
The ever more inappropriately named Meta (which recently shuttered its Metaverse-defining Horizon Worlds on Metaquest) is in a clear bear market, 25% below the post 4Q highs having traded lower on 6 of 7 weeks...
... and is now off to one of its slowest starts in history (’20 and ’22 stated slower).
In turn, the stock is now trading at 17x Goldman's ’27 GAAP EPS estimate (ex-cash) as investor sentiment on the name has transitioned from optimistic driven by a “controls its own destiny” feel (we got the expenses guide for ’26, now time to get “upside” from revenues, AI products, LLM efforts & operating leverage) to more of a “show me story” narrative, as in the absence of a backlog figure to look at (which peers like AMZN and GOOGL have), investors have increasingly debated:
- 1) progress around Meta’s native LLM outlook (and, the cost / ability to keep up with frontier labs over the long-term)
- 2) visibility into revenues outrunning costs (capex + opex) especially in an increasingly uncertain macro environment (e.g. the ‘math’ on Revs v OpEx v CapEx v FCF)
- 3) product momentum out of Superintelligence Lab – are there new products that gain traction? (e.g. ROIC beyond AI recommendation engines driving the Ads acceleration)
In a timely, ‘mark to market’ note published on Monday, Goldman's research analyst Eric Sheridan walks through his views on latest headlines as well as a few scenario analyses to try and ‘flex’ potential cost levers (full note here).
What are Eric's views on recent headlines:
- “We believe that META mgmt gave a fulsome forward opex/capex guidance with the last set of earnings result and it would be premature to think that any of these news reports were entirely incremental to that framing”
- … “that being said, if accurate, such initiatives could return META to prior period cadence of providing an initial opex/capex guidance to begin a fiscal year and then delivering on an upward trajectory in terms of EPS revisions as the fiscal year progress (this remains our working view)..”
- On foundation model timing: “we continue to remain anchored around META’s founder/CEO comments from the public earnings call that any public release (& resultant pillars of their AI strategy – compute, agentic products, etc.) would be more of a 2H 2026 into 2027 timing dynamic and would represent first iterations of models (that could be built upon over a multi-year time horizon)”
In his report, the Goldman analyst details 3 separate illustrative analyses (not base case estimates) based on reports of the potential actions and how they may impact META’s forward earnings growth (scenario 3 was the most surprising ): the overarching take is that: “indicative that META remains well able to produce forward positive EPS revisions because of any initiatives which aim to balance efficiencies and forward growth investments given the current construct of its cost base“
- Scenario 1: Flexing Headcount & Cost per Employee, which implies a potential ~LDD % tailwind to our current GAAP EBIT/EPS estimates in 2026 and ~20%+ tailwind in 2027/2028.
- Scenario 2: Flexing Reality Labs Opex, which implies a more modest potential ~L-MSD % tailwind to our current GAAP EBIT/EPS estimates in 2026-28.
- Scenario 3: Flexing Total Non-D&A Opex Growth to Flat over 3 years …. which implies the most significant potential (albeit least likely in GIR’s view) or a ~30%+ multi-year tailwind to GIR’s current GAAP EBIT/EPS estimates in 2026-2028 (assuming the company were to achieve flat growth ex-D&A) – this kicks out a ~$47+ EPS number in CY27 (or ~40% above GIR’s estimate)
What is the Goldman stock call?
Sheridan reiterates his Buy rating and a 12-month price target of $835. While the forward trajectory of annualized FCF will continue to raise questions about the valuation methodology for META shares, Goldman continues to see the impact of 2025-2027 capex as a means of positioning the company for long-term growth and market opportunities and find recent narratives (discussed in note) as emblematic of a company that historically has positively progressed through investment cycles to the benefit of long-term equity value creation.
The full Sheridan note can be found here for pro subs.
Charts in focus:
META; the stock has stalled out (white line) just as GAAP EPS revisions have stalled out (orange line) – consensus EPS ests have stalled out in the ~$29-30 range over the last ~18-months. To Goldman TMT specialist Peter Callahan, this is a very important chart given the (understandable) bull argument that Meta is ‘cheap’ on GAAP EPS – feels like the stock needs to see (+) GAAP EPS Revisions for that argument to gain traction.
Stalling out: Meta is up just 1% over the last 15-months (chart below = Mag 7 performance since the start of 2025) -- lagging the broader Mag 7 group (up 10% over this stretch) …
Technicals: META has broken below the recent trend line and is approaching oversold territory (14-day RSI = 32)
More in the full note from Eric Sheridan (research) and Peter Callahan (S&T) for pro subs.
