UBS reiterated Meta Platforms Inc (NASDAQ:META) at Buy with a $300 price target on Tuesday, also maintaining it as the firm's top large-cap pick in the internet space.
Analysts reviewed the company's Reels opportunity, given higher incrementality and potential from overlay ads, stating that Meta's time spent growth, particularly at Instagram, has accelerated, and the revenue headwinds from Reels have been more moderate.
"In our updated analysis, we assume more incremental time spent, more extensive use of overlay ads to offset structural monetization headwinds in the traditional ad placement, which results in a bull case tailwind of 18% from reels at scaled monetization over the next several years (vs 8-15% in our original analysis)," wrote the analysts.
UBS expects Reels to have a $5 billion revenue runrate exiting FY 2023 and also sees it getting to revenue neutrality. In addition, they see Overlay ads allowing higher ad load on Reels with limited disruption to the user experience.
"Our analysis suggests that a more normal ad mechanic could flip reels into a 5% tailwind to revenue at scale, and adding overlay ads on 25% of Reels could add an additional 13% benefit, for an 18% total benefit," added the analysts.
"We reiterate our Buy rating on Meta shares, with a compelling +53% / (36%) upside/downside skew, with upside to estimates and the multiple," the analysts concluded.