Meta Falls as Analysts Point to Continued E-Commerce Ad Weakness (NASDAQ:META)

Meta Platforms Shares (NASDAQ:META) was one of the biggest decliners in the communications services sector on Friday, -1.7%after Edgewater Research pointed to some ongoing “elements of weakness” in the company’s advertising performance.

“Once again (direct response) campaign effectiveness remains under pressure “Our META business is largely impacted, and the group of contacts experiencing this weakness has expanded even further in June compared to our last updates in May and April,” analysts Joe Wittine and Nick Koontz wrote.

Analysts note that from a quantitative perspective, 13 of the 29 META connections showed lower-than-expected conversion rates in some locations in June and early July.

They highlighted that these trends are most visible in META’s primary direct-to-consumer/e-commerce channel.

That could be interpreted as consumer weakness, “doing more window shopping, becoming more selective about discretionary purchases, and demanding price promotions before pulling the trigger,” they wrote. But it could be due to auction dynamics, particularly supply constraints — which would also help explain why weakness is “more concentrated” in META than in Alphabet (GOOG) (GOOGL) or Snap (SNAP) and Pinterest (PINS), which “remain above the fray for now.”

Agencies generally say META spend in June is about 10% below expectations and is for underperforming brands.

They noted a number of relatively positive factors, including the fact that Q2 is naturally volatile for e-commerce retailers as consumers prioritize things like travel; that some large advertisers saw an improvement in early July; Meta’s return on ad spend continues to outpace that of Snapchat, Pinterest, and paid social media rivals like TikTok (BDNCE); most feedback from non-e-commerce verticals is positive, including travel, B2B, and finance; and Meta is doing particularly well in iOS mobile ad install campaigns.