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Investing.com -- Needham & Company upgraded Meta Platforms (NASDAQ:META) to Hold from Underperform in a note Thursday, citing better-than-expected second-quarter results and strong labor productivity metrics.
However, the firm maintained a cautious stance, pointing to strategic concerns and structural cost pressures.
“We upgrade META to Hold (from Underperform) based on: a) channel checks driving upside to our estimates; and b) META’s strong labor productivity metrics,” Needham wrote in a note, highlighting the company’s globally scaled, software-only model that benefits from “closed loop attribution for advertisers” and requires no content payments.
Despite the upgrade, Needham stopped short of a Buy rating, warning that “META’s strategy diffusion wastes capital and adds risks.”
The firm remains concerned about persistent margin and free cash flow pressures, noting that Meta’s stock-based compensation per full-time employee (SBC/FTE) is the highest among its peers.
“Consensus estimates understate total labor costs and dilution,” analysts said.
Needham also flagged regulatory risks and pointed to a crowded trade: “About 90% of the 50 analysts that cover META have a Buy or Strong Buy rating, which implies (to us) that META shares are over-owned.”
The firm raised its full-year 2025 forecasts to 14% revenue growth and 6% EPS growth, up from earlier estimates. “META will over-deliver on our prior rev and margin estimates for 2Q25 and FY25,” the note stated.
Still, analysts warned that “labor productivity improvement is slowing,” with rising headcount and higher employee costs acting as potential headwinds for further share price appreciation.