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Meta's (META) Recent Loss in Russian Court Impacts Ad Revenues

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Meta Platforms (META - Free Report) has faced another blow in its tussle with Russian authorities. A Moscow court on Jun 17 ruled against Meta’s appeal to withdraw the extremist activity tag.

On Mar 11, Russian authorities launched a criminal investigation against Meta, and prosecutors asked a court to mark Meta as an extremist organization. Russian authorities banned Facebook and Instagram to counter Meta’s decision to allow violent posts against Russian forces citing that such posts threaten the safety of Russian citizens.

Meta has since then narrowed its guidance to block death threats against the Russian head of state and defended the company's policy against the Russian authorities’ complaints. Meta stated that its policies do not support Russophobia or any sort of violence against Russian citizens on its platform.

The changes to standard content policies by Meta are directed toward Ukrainians as the company is supporting their rights to speech in self-defense against Russian military aggression in Ukraine.

The ban on Instagram and Facebook has impacted revenue growth negatively due to the loss of ad revenues in Russia. Meta expects this trend to continue in the second quarter of 2022 and might keep Global MAU flat. As a result, Meta has reduced the second-quarter revenue guidance.

Meta Shares Hurt by the Russia-Ukraine War

The recent ban by Russia not only impacts Meta’s ad revenues but also indirectly impacts the stock price movement negatively.

Opposing Russia, the Biden organization banned the import of Russian oil and other petroleum products. This changed the oil supply forecast negatively, and crude oil prices climbed exponentially. This resulted in a broader increase in inflation, which increased to 8.6% in May 2022 — the highest in the last 41 years.

Rising inflation has compelled customers in the United States and Europe specifically to pull back on their purchases. This, in turn, slowed down growth in Meta’s online commerce vertical, which increased quickly during the COVID-19 pandemic.

The geopolitical tensions have impacted the S&P 500 index negatively, which plunged 23.2% in the year-to-date period. This was reflected in the falling stock prices of Meta’s FAAAM peers, Apple (AAPL - Free Report) and Alphabet (GOOGL - Free Report) . Twitter (TWTR - Free Report) , another social media giant, faced a ban in Russia. Negative sentiments among investors after the ban and macro-economic turmoil hampered Twitter’s stock prices.

Shares of Meta have tumbled 51.6% in the year-to-date period compared with the Zacks Internet – Software industry and Zacks Computer and Technology sector’s decline of 53.1% and 32.3%, respectively.

Apple’s shares have fallen 25.2% in the year-to-date period compared with the Zacks Computer - Mini computers industry’s decline of 24.7%.

Alphabet shares have lost 26% in the year-to-date period compared with the Zacks Internet – Services industry’s decline of 28.9%.

Twitter shares have fallen 12.3% compared with the Zacks Internet Software Industry’s decline of 53.1%.

Although Meta’s short-term revenue growth looks bleak, the company is confident about its long-term opportunities and growth. Meta has divided its investment priorities into three parts — Reels, ads and the Metaverse.

Reels are the newest trend right now, and the feeds are increasingly being recommended by AI. This will enable Meta to evolve its ad systems to do more with less data, thus reducing its privacy policy issues substantially. Meta is looking to grow video monetization in Reels, where people spend 20% of their time on Instagram.

As the company is looking to create the Metaverse, Meta’s Quest 2 continues to be the leading virtual reality headset. The company will release the higher-end headset Project Cambria later this year, which is anticipated help Meta retain its leading position in VR/AR hardware products. Meta will expectedly enjoy the first-mover advantage in developing the Metaverse where they are trying to create AR as a self-reliant economy.

Meta currently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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