Bank of America downgrades Meta, cuts price target

Analyst Justin Post on Monday downgraded the company’s stock to “neutral” from “buy,” citing concerns about advertising pressure, competition, and Meta’s metaverse ambitions. 

“Metaverse investment will remain a stock overhang,” Post wrote, according to a note obtained by MarketWatch. He also noted, referring to earnings per share, that other analysts may be “less likely to back out Metaverse spend from EPS for valuation purposes given lack of apparent progress with (or reported metrics on) users, potential new Apple competition, and a higher cost-of-capital mindset.”

Post cut his 12-month price target for Meta to $150 from $196.

Meta declined to comment when reached by Fortune.

The news comes after the Wall Street Journal reported that Meta’s flagship virtual world was having trouble gaining traction. While the company had initially set a goal of 500,000 monthly active users by the end of 2022, company documents obtained by the Journal revealed that Meta has slashed that goal nearly in half—and was currently below it.

The lackluster metaverse user count stands in contrast to the nearly $15 billion Meta has so far spent on its augmented and virtual reality division, Reality Labs.

In his Monday note, Post also cited shortfalls with Meta’s Reels product as a reason for his “more cautious” stance toward the stock.

“So far, Reels content does not appear to be materially incremental for total time spent on Instagram (IG) and Facebook (FB) and, like Snap, social content time in stories and feed could be down high single digits,” Post wrote. “The shift in usage on FB/IG is a potential negative for gross margins and long-term competition.”

In the second quarter, Meta reported its first revenue decline since going public and lower-than-expected profits. The Reality Labs division reported a $2.4 billion loss, about 15% more than in the same quarter last year. Meta is set to release third-quarter results after market close on Wednesday.

After falling nearly 4% on Monday morning to $124.84, Meta shares rebounded slightly, trading down about 0.21% at $129.73 on Monday afternoon.