Business model

Meta’s ‘heartbreaking business model shift’ leaves its future uncertain, analyst says [Video]

As earnings season draws to a close, big tech names such as (AMZN), Microsoft (MSFT) and Alphabet (GOOG, GOOGL) have proven remarkably resilient in a challenging macro environment. But not all tech companies escaped unscathed, Independent Solutions Wealth Management portfolio manager Paul Meeks told Yahoo Finance (video above).

“I think Amazon, Microsoft, and Alphabet have shown great resilience,” he told Yahoo Finance last week. “I’m always…staying away, for defensive purposes, [from] Netflix (NFLX) and Meta (META).”

Meeks expressed particular concern about Meta, which owns Facebook, Instagram and WhatsApp. The digital advertising market has been fragile, particularly after Apple (AAPL) made privacy changes last year that limit apps’ ability to effectively target consumers with ads.

“This is a time that demands more intensity and I expect us to do more with less,” CEO Mark Zuckerberg told analysts on his latest earnings call.

AUSTIN, TEXAS – MARCH 15: Mark Zuckerberg, via video, speaks at Into the Metaverse: Creators, Commerce and Connection during the 2022 SXSW Conference & Festivals at the Austin Convention Center on March 15, 2022 in Austin, Texas. (Photo by Samantha Burkardt/Getty Images for SXSW)

While Meeks thinks we’ll see a “digital advertising rebound,” he says Meta’s problems run deeper than that. Meta, which announced its first-ever revenue decline in late July, is in the midst of a paradigm shift. In 2021, the company changed its name and began prioritizing its bet on the Metaverse, a setting that includes virtual reality experiences. Meta also reported earnings per share and revenue losses.

“Here’s a company going through a heartbreaking business model shift, and I don’t know what that looks like in terms of revenue and bottom line growth after that,” Meeks told Yahoo Finance. “I have to stay away until I can at least guess what this business will look like.”

Meta’s stock is down about 49% year-to-date.

Why Netflix Challenges Differ From Meta Challenges

Meeks added that he feels “a little better” about Netflix, compared to Meta, and expressed optimism about Netflix’s next ad-supported product. In July, Netflix announced it would work with Microsoft to develop the company’s first ad-based subscription offering.

Meta, on the other hand, has revamped itself by focusing on its social media properties, to strengthen its presence in the metaverse, which is why the company changed its name from Facebook.

“At least with Netflix, we know that their business model will be similar, whereas [with] Meta, they go from black to white,” Meeks said. He added, “The problem with Meta [is that] they go from one company to a potentially very different company.”

Allie Garfinkle is a senior technical reporter at Yahoo Finance. Find her on Twitter @agarfinks.

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