Meta's 'wrenching business model change' makes its future uncertain, analyst says

As earnings season winds down, major tech names such as (AMZN), Microsoft (MSFT), and Alphabet (GOOG, GOOGL) have proven remarkably resilient in a tough macroeconomic environment. But not every tech company has come out unscathed, Independent Solutions Wealth Management Portfolio Manager Paul Meeks told Yahoo Finance (video above).

"I think that Amazon, Microsoft, and Alphabet have shown some nice resiliency," he told Yahoo Finance last week. "I'm still... 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 shaky, especially after Apple (AAPL) made privacy changes last year that curb the ability of apps to effectively target consumers with ads.

“This is a period that demands more intensity and I expect us to get more done with fewer resources,” CEO Mark Zuckerberg told analysts in its most recent earnings call.

While Meeks believes we'll see a "rebound in digital advertising," he says Meta's troubles run deeper than that. Meta, which reported its first-ever revenue drop in late July, has been in the midst of a paradigm shift. In 2021, the company changed its name and began to prioritize its bet on the metaverse, a framework that includes virtual reality experiences. Meta also reported earnings per share and revenue misses.

"Here's a company that's going through a wrenching business model change, and I don't know what it looks like as far as top-line and bottom-line growth afterwards," Meeks told Yahoo Finance. "I need to stay away until I can at least guesstimate what this company will be and look like."

Meta's stock is down approximately 49% year-to-date.

Why Netflix's challenges differ from Meta's

Meeks added that he feels "a bit better" about Netflix, as compared to Meta, and expressed optimism about Netflix's forthcoming ad-supported product. In July, Netflix announced it would be working with Microsoft in developing the company's first ad-based subscription offering.

Meta, on the other hand, has been retooling itself from focusing on its social media properties, to building out 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're going from black to white," Meeks said. He added, "The problem with Meta [is that] they're going from one business to a potentially really different business."

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

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