#SocialStocks: Big Tech takes hard stance against DMA

Child safety in focus, Zoom discloses third quarter results, 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.

TWITTER HEAD PROBED: 

Four Democratic House representatives including Earl Blumenauer of Oregon and Jim McGovern of Massachusetts have sent a letter to the U.S. SEC asking for an inquiry into whether or not Elon Musk committed securities fraud, “by allegedly misleading investors about the safety of a brain implant being developed by the billionaire’s firm Neuralink,” wrote Marisa Taylor for Reuters. Musk is the founder, chairman, CEO and chief technology officer of SpaceX; CEO, product architect and of Tesla,(TSLA) owner, chairman and CTO of X (TWTR);founder of the Boring Company and xAI; co-founder of Neuralink and OpenAI Elon Musk completed his acquisition of Twitter now X, in October 2022.

CRACKING DOWN ON CHILD SAFETY: 

The U.S. Senate Judiciary Committee has subpoenaed the CEOs of Snap, X, Discord to testify at a hearing on children’s online safety on December 6, The Washington Post’s Cristiano Lima reported. Meta has come out in support of regulatory scrutiny on the matter, calling for legislation requiring app stores to get parental approval for kids aged 13 to 15 to download apps, pushing Google (GOOGL) and Apple (AAPL) to play a bigger role, The Washington Post’s Cristiano Lima and Naomi Nix reported.

GLASSES WITHOUT VISION: 

The head of augmented reality software at Meta Platforms (META), Don Box, is resigning from his position, Katie Paul of Reuters reported, citing a company spokesperson. This departure has sparked inquiries regarding the company’s advancement in creating a tailored operating system for its anticipated AR glasses. Don Box, the VP of Engineering, internally communicated the conclusion of his tenure at Meta earlier this week.

ZOOM EARNINGS RECAP: 

Zoom Video (ZM) beat earnings per share and revenue expectations in its third quarter report. Additionally, the company provided Q4 guidance and tweaked full-year expectations. Citi analyst Tyler Radke upgraded Zoom Video Communications (ZM). The analyst sees a more balanced risk/reward with the stock sitting below the target price and near “trough multiples.” Citi sees potential for near-term stabilization to play out with a conservative guidance that assumes macro deterioration and web traffic signaling some incremental improvement. However, Zoom still “faces significant risks, some arguably existential,” with looming Microsoft (MSFT) competition and lack of pricing and peaking margins/declining efficiency, the analyst tells investors in a research note. On the other hand, Piper Sandler lowered the firm’s price target on Zoom Video and keeps a Neutral rating on the shares. The firm notes Zoom reported slightly better top-line results, exceptional profitability and cash-flow, and a relatively inline Q4 guide as macro-uncertainty remains, FX-headwinds, customers are scrutinizing seat-costs, and additional scrutiny around payment durations. Piper continues to see shares as range-bound as the business tries to find stability, shares lack a catalyst, capital usage remains in question, and FY25 sales estimates appear too high but free cash flow potentially is adequate. “In Q3, revenue came in ahead of guidance as we bolstered Zoom’s all-in-one intelligent collaboration platform with advanced new capabilities like Zoom AI Companion and continued to evolve our customer and employee engagement solutions. We are also pleased with our Online business where we drove higher retention and saw usage of our new AI capabilities, enhancing the value of our platform,” said Eric S. Yuan, Zoom founder, and CEO. “Our strong performance across a number of metrics has enabled us to increase our full year outlook for revenue and non-GAAP profitability, as well as for free cash flow, which we now expect to be in the range of $1.34 billion to $1.35 billion, up approximately 13% year over year.”

DMA OPPOSITION: 

Apple has filed a legal case contesting decisions taken by the European Commission under its recently-introduced Digital Markets Act, according to Reuters’ Martin Coulter, citing a post shared by the Court of Justice of the European Union on X, formerly known as Twitter. The new legislation targets 22 “gatekeeper” services, run by six tech companies – Apple, Microsoft (MSFT), Alphabet’s Google, Amazon (AMZN), Meta and ByteDance’s TikTok – the report noted.

Meta has appealed the EU’s decision to designate Messenger and Facebook Marketplace as “core” services under the DMA, The Financial Times’ Javier Espinoza noted. Meta is expected to argue that Messenger is a chat functionality of Facebook and as such not a separate app and therefore not a separate service, and the company will also argue that Marketplace is a consumer product and not a “gateway” for businesses to target consumers, people familiar with the appeal say. Separately, TikTok, owned by China’s ByteDance, is also challenging the EU’s decision to brand it a gatekeeper under the DMA.

NEW MARKETING HEAD: 

Sprout Social (SPT) announced the appointment of Scott Morris to chief marketing officer, CMO, effective December 4, 2023. As CMO, Morris will oversee Sprout’s global marketing organization and be a key contributor to Sprout’s continued growth. Morris brings more than 25 years of experience leading key strategic marketing initiatives at both B2B and B2C tech companies. Prior to Sprout, Morris held executive leadership positions at Zendesk including SVP Global Marketing and Acting CMO.

ADDITIONAL ANALYST COMMENTARY: 

Tigress Financial raised the firm’s price target on Meta Platforms. Meta continues to benefit from its “dominant digital advertising position” and is well-positioned to benefit from ongoing innovation, increasing AI functionality integration and new product introductions, said the analyst, who notes that the firm’s revised target represents a potential return of over 27% from current levels.

Piper Sandler lowered the firm’s price target on Zoom Video. The firm notes Zoom reported slightly better top-line results, exceptional profitability and cash-flow, and a relatively inline Q4 guide as macro-uncertainty remains, FX-headwinds, customers are scrutinizing seat-costs, and additional scrutiny around payment durations. Piper continues to see shares as range-bound as the business tries to find stability, shares lack a catalyst, capital usage remains in question, and FY25 sales estimates appear too high but free cash flow potentially is adequate.

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Originally Posted November 22, 2023 – #SocialStocks: Big Tech takes hard stance against DMA