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Meta Platforms-owned Facebook (FB) is closing in on regulatory approval for the proposed acquisition of Kustomer. Citing people familiar with the matter, Reuters reports that the social networking giant could secure E.U. antitrust approval after offering strong remedies. FB stocks fell 1.98% to close at $334.90 on December 16.

Meta Platforms is a social networking company that develops and offers applications to connect through mobile devices, personal computers, and other technologies. Its products include Facebook, WhatsApp Messenger, and Instagram. Meta Platform's earnings report for Q4 2021 is scheduled for February 2, 2022.

Kustomer Acquisition

The E.U. antitrust authority is poised to make a final decision on the deal by January 28 of next year. The German cartel office has urged Facebook to seek approval for the deal, having already secured regulatory approval in Britain and Australia.

Some of the remedies that Facebook is offering include allowing rival products to function with Kustomer after the acquisition. The customer service startup offers CRM software for businesses. Its offerings allow businesses to communicate with customers by phone, email, and text messages, among other channels.

The European Commission had initially raised concerns that if the deal is allowed to go through, it could hurt competition. Additionally, there were concerns that the acquisition could strengthen Facebook’s online advertising operations.

In its defense, Facebook insists the acquisition will strengthen competition and, most importantly, bring more innovation to businesses and consumers in the competitive CRM and business messaging spaces.

Stock Rating

Earlier this month, HSBC analyst Nicolas Cote-Colisson reiterated a Hold rating on Facebook stock with a $300 price target, implying 10.42% downside potential to current levels.

According to the analyst, FB's investment case remains a fragile balance between heightened regulation and business opportunities. The Hold rating on Facebook stock stems from the high regulation risk.

Consensus among analysts is a Strong Buy based on 29 Buys and 6 Holds. The average Facebook price target of $406.31 implies 21.32% upside potential to current levels.

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December has been no picnic for the Big Tech firms, with four important Congress hearings to discuss the concerns regarding the ill effects of social media on democracy, society, the mentality of the younger generation, and national security.

Monness Crespi Hardt analyst Brian White, a 5-star analyst on TipRanks, took minutes of the hearings and compiled some important takeaways.

Congress Grills Meta

Some of the FAANG stocks that run social media platforms were called out to become more transparent and held more responsible, with criticism pointed specifically toward Meta Platforms (FB) for not being available during past hearings. Most of the members stressed the need for Federal privacy and data security regulation to be imposed on these platforms.

The confusion around how algorithms work on the platforms was also a hot topic of discussion. Former Meta Platforms employee and whistleblower Frances Haugen pointed out that Facebook’s algorithm changed a few years ago, possibly leading to the rapid spread of toxic information and ideas. Moreover, the discriminating character of the algorithms against certain people; political censorship; and questionable effectiveness of AI in filtering out inappropriate content, were other areas of concern within the topic of algorithms.

Instagram head Adam Mosseri was also questioned and solicited for access to the platform’s algorithms for independent researchers. “The frustration in dealing with Big Tech could be heard with each question asked, combined with a warning that legislation is coming,” noted White.

However, White was impressed with how Mosseri handled his case, as opposed to Facebook executives’ past performance in such hearings.

Effect on Crowd Sentiment

These issues did have a negative effect on investor sentiment, though. The Meta Platforms stock saw a 6.32% drop in share price in the past 3 months.

Moreover, unique website visits to Facebook and Instagram, two of Meta's major social media platforms, fell 25.63% so far, in the current quarter.

Wall Street Weighs In

However, White seems quite unfazed by the legislative issues, and is upbeat about Meta Platforms. The analyst reiterated a Buy rating on the stock with a price target of $460.

“With sales up 37% per annum over the past five years, EPS (earnings per share) turning in a 51% CAGR and one of the highest operating margins in our coverage universe, we believe Meta Platforms should trade at a healthy premium to the market and tech sector,” explained White.

The sentiment of the rest of Wall Street resonates with that of White, with a Strong Buy consensus rating, based on 29 Buys and 6 Holds. The Meta Platforms stock forecast of $406.31 indicates an upside of 18.92%.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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