#SocialStocks: Snap Gains Following Leaked Turnaround Plan

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Twitter adds following trial delay decision, Republicans probe Facebook’s suppression of Hunter Biden article and other notable stories from this week.

Welcome to “#SocialStocks,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

SNAP MEMO: 

Snap (SNAP) CEO Evan Spiegel told employees in an internal memo sent to staff on September 6 that was obtained by The Verge that the company aims to grow Snapchat’s user base by 30% to 450M by the end of next year, and that it aims to increase revenue by 20% to $6B in 2023, according to Alex Heath. Spiegel said the plan is for $350M of that revenue to come from the paid subscription Snapchat recently introduced, which he noted is already on track to hit 4M subscribers by the end of this year, according to Heath’s report. For FY23, Spiegel forecast $1.5B+ of adjusted EBITDA and $1B+ of free cash flow, the memo shows. Shares are consequently up 6%. 

TRIAL LATEST: 

Delaware Chancery Judge Kathaleen McCormick denied Tesla (TSLA) CEO Elon Musk’s request to delay the trial over his attempt to abandon an agreement to acquire Twitter (TWTR). However, Musk will be allowed to add claims from a Twitter whistleblower to his countersuit, McCormick said. Musk’s legal team is “permitted only incremental discovery relevant to the new allegations” raised by the whistle-blower, McCormick wrote in a five-page ruling on Wednesday. Earlier in the week, it was reported by The Washington Post’s Elizabeth Dwoskin, Joseph Menn and Cat Zakrzewski that whistleblower Peiter Zatko’s allegations offer details on Twitter’s misinformation policies and security failures, like accepting a QAnon proponent into its Birdwatch program. Shares of Twitter were up 4% to $40.35 in morning trading. Specifically,  Musk suggested delaying his $44B takeover because it “wouldn’t make sense to buy Twitter if we’re heading into world war three,” Hannah Murphy and Sujeet Indap of The Financial Times reported, citing texts between Musk and his bankers revealed in a court hearing. In the Delaware Chancery court, Twitter shared the message exchange in an effort to argue Musk’s attempts to back out of the deal citing concerns over bots were “all pretext.” According to the exchange dated May 8, several weeks after Musk agreed to buy the company and two months into Russia’s invasion of Ukraine, Musk wrote, “Let’s slow down just a few days. Putin’s speech tomorrow is extremely important,” according to the Times. 

REFOCUS: 

Meta Platforms’ (META) Instagram told staff that it intends to drastically scale back its shopping features as the company refocuses its e-commerce efforts towards features that directly drive advertising, The Information’s Sylvia Varnham O’Regan reported. The move underscores why Meta is shifting away from some long-term projects as it seeks to build on its short-form video business, the author said.

CONNECT: 

Meta will hold its Connect conference virtually on October 11. The company said: “Meta Connect is a one-day virtual event that explores the building of the metaverse and the future of augmented and virtual reality. Industry leaders will share the latest technologies and developer sessions will cover how to use them. Our goal is to bring the world closer together and deepen human connection through new experiences.”

DATA MISHANDLING: 

Ireland’s Data Protection Commission said Monday that it fined Instagram owner Meta Platforms $402M in a long-running investigation that had looked at minors who operated business accounts on the service, potentially exposing more of their contact information than if they operated a personal account, The Wall Street Journal’s Sam Schechner reported. Meta said the decision related to old settings it had updated more than a year ago, and that it plans to appeal the calculation of the fine.

VR M&A: 

A Meta spokesperson told the Wall Street Journal that it has acquired Lofelt, a German startup whose technology seeks to replicate the illusion of touch in virtual reality. The deal comes as the Facebook parent is locked in a legal dispute with the FTC, which announced this summer it would seek to halt the company’s takeover of Within Unlimited. “We’re excited that members of the Lofelt team have joined Meta,” a Meta spokesperson said, not disclosing terms of the deal.

THERE GOES THE NEIGHBORHOOD: 

Meta is shuttering its Nextdoor (KIND) clone Neighborhoods, which launched last year to help neighbors connect and share local news on Facebook, on October 1, TechCrunch’s Sarah Perez reported, citing sources. The company initially invested in the project after seeing the popularity of local content on the platform, but decided the best way to move forward was to allow people to continue to use Facebook Groups, as they always had.

REPUBLICANS PRESS ZUCKERBERG: 

In a Thursday letter to Meta Platforms CEO Mark Zuckerberg, 35 House Republicans said, “Shortly before the 2020 presidential election, Facebook suppressed an explosive New York Post article detailing how Hunter Biden used the position and influence of his father, now- President Biden, for personal gain, with the apparent awareness of President Biden. We wrote to Facebook at the time with important questions about Facebook’s knowing suppression of First Amendment-protected activity.1 In March 2022, after other outlets finally acknowledged the veracity of the Biden family’s influence-peddling scheme, we wrote again with additional questions about Facebook’s actions to suppress critical election-related information. Facebook has never provided complete responses to these letters and, in the months since, has avoided any real accountability for its actions in interfering with election-related public discourse. Recently, you described how Facebook’s censorship of the allegations about the Biden family before the 2020 election followed a message from the Federal Bureau of Investigation that Facebook “should be on high alert” for “Russian propaganda.” You acknowledged that this official alert from the FBI is what led to Facebook reducing the circulation of the Post’s reporting on its platform, preventing Americans from fully understanding highly relevant allegations about President Biden’s awareness of and involvement in his family’s influence- peddling scheme. Accordingly, we write to request additional information about Facebook’s actions to interfere in free and fair election-related public discourse.”

CHIP DEAL: 

Meta Platforms signed a pact to have Qualcomm (QCOM) produce custom chipsets for its Quest virtual reality devices, Reuters’ Katie Paul reported. Engineering and product teams of both companies will partner to produce the chips, powered by Qualcomm’s Snapdragon platforms.

EDIT TWEET: 

In a blog post, Twitter stated: “It’s true: Edit Tweet is being tested by our team internally. The test will then be initially expanded to Twitter Blue subscribers in the coming weeks. Given that this is our most requested feature to date, we wanted to both update you on our progress and give you and a heads up that, even if you’re not in a test group, everyone will still be able to see if a Tweet has been edited… Like any new feature, we’re intentionally testing Edit Tweet with a smaller group to help us incorporate feedback while identifying and resolving potential issues. This includes how people might misuse the feature. You can never be too careful. Later this month, we’ll be expanding Edit Tweet access to Twitter Blue subscribers. As part of their subscription, they receive early access to features and help us test them before they come to Twitter. The test will be localized to a single country at first and expand as we learn and observe how people use Edit Tweet. We’ll also be paying close attention to how the feature impacts the way people read, write, and engage with Tweets.”

PAID FEATURE:

Meta is establishing a product organization to identify and create “possible paid features” for Facebook, Instagram, and WhatsApp, The Verge’s Alex Heath reported, citing an internal memo sent to employees last week. The new unit is Meta’s first serious entry into building paid features across its main social apps, the author notes.

ANALYST COMMENTARY: 

Cantor Fitzgerald analyst Brett Knoblauch on Sprout Social (SPT) he believes the market is under-appreciating the duration at which Sprout can grow revenue and its FCF-generating ability.

Wolfe Research analyst Deepak Mathivanan upgraded Pinterest (PINS). The analyst believes the company has “significant runway” on both user growth and monetization over the long-term. In addition, Pinterest’s pace of execution and progress on its long-term initiatives “should improve nicely” under new CEO Bill Ready, and the stock has “several positive catalysts” ahead including monthly active user growth, margin expansion, and product launches, Mathivanan told investors in a research note. The analyst also sees a strategic takeover as a potential outcome for shares should the company’s execution lag over next several quarters given the activist involvement. Overall, he thinks the stock’s risk/reward “skews positively at current levels.”

RBC Capital analyst Brad Erickson raised the firm’s price target on Snap. The company’s positive pre-announcement and headcount reduction has again surprised investors while offsetting the pessimism around the departure of two major executives, the analyst told investors. Erickson remains neutral on the stock however given that Snap’s ad spend remains more discrete and therefore volatile than its peers in the space.

On the other hand, Credit Suisse analyst Stephen Ju lowered the firm’s price target on Snap. The analyst noted Snap announced it will adjust its strategic priorities given the changing macro, and lingering measurement challenges from the deprecation of IDFA. More near-term, Q3 quarter-to-date revenue trends are tracking up 8% year-over-year, Ju added. Although Snap is not citing any specific verticals or regional strength but rather broad-based recovery off the late-Jul outlook, the analyst believes marketers are getting past the initial knee-jerk reaction of lowering budgets as either market share loss and/or revenue headwinds become more apparent.

Originally Posted September 7th, 2022 – #SocialStocks: Snap gains following leaked turnaround plan

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