Trump-backed SPAC looks to build social media competitor, PayPal does not want to buy Pinterest 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.
FTC TAKES A LOOK INTO INSTAGRAM:
Federal Trade Commission staffers have begun looking into disclosures that Facebook’s (FB) internal research had identified ill effects from its products, John McKinnon and Brent Kendall of Wall Street Journal reported, citing people familiar with the matter. Officials are looking into whether Facebook research documents indicate that it might have violated a 2019 settlement with the FTC over privacy concerns, one of the people told the Journal. The research reportedly found proof that the company’s algorithms foster discord and that its Instagram app is harmful for a large percentage of its users, notably teenage girls, among other findings. In a statement to the paper, Facebook said that it is “always ready to answer regulators’ questions and will continue to cooperate with government inquiries.” More specifically, Facebook’s researchers found that Instagram bombards teenage girls who have anorexia and other eating disorders with photos and videos of other afflicted girls, a practice that experts say has been shown to worsen the disorders, according to The New York Post’s Theo Wayt.
In the past week Facebook, Twitter (TWTR) and Snap (SNAP) have all reported Q3 earnings. Firstly, Snap reported mixed results last Thursday. Daily active users, or DAUs were 306M in Q3, an increase of 57M, or 23%, year-over-year. Year-over-year growth in DAUs has now exceeded 20% for four consecutive quarters. “Snap celebrated its 10th anniversary this quarter, and we are excited about the long-term opportunity and potential for our business, as we grew our community to 306 million daily active users, and grew our revenue 57% year-over-year to reach $1.067 billion for the quarter,” said Evan Spiegel, CEO. “We’re now operating at the scale necessary to navigate significant headwinds, including changes to the iOS platform that impact the way advertising is targeted, measured, and optimized, as well as global supply chain issues and labor shortages impacting our partners. We will continue to focus on delivering strong results for our advertising partners and innovating to expand the capabilities of our platform and better serve our community.” Shares of Snap took a sharp descent after the company provided conservative Q4 revenue guidance well below analyst expectations. The stock was down as much as 22% following the guidance. On the other hand, the company guided Q4 DAUs to 316M-318M, up 19%-20%.
Facebook book shares were up following its Q3 report on Monday. The company noted DAUs of 1.93B on average for September, up 6% year-over-year. Also, the social media giant reported monthly active users, or MAUs of 2.91B as of September 30, an increase of 6% year-over-year. While Q4 revenue guidance did come in just below consensus, the company boosted its share repurchase authorization by $50B in concert with the quarterly report. “We expect fourth quarter 2021 total revenue to be in a range of $31.5 billion to $34 billion. Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors. In addition, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year’s holiday shopping season. As previously noted, we also continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations.”
Lastly, Twitter provided its Q3 figures yesterday. Despite reporting a Q3 EPS loss of (54c) compared to consensus of 15c, the company’s average monetizable DAU reached 211 million, up 13% year over year. Average U.S. mDAU was 37M for Q3, and average international mDAU was 174M for Q3. The company’s Q4 revenue view fell right in line with analyst’s expectations. Twitter said: “We continue to expect total revenue to grow faster than expenses in 2021, and we expect to continue our investment posture as we enter next year. Our 30%+ headcount growth in 2021, with annual merit increases, and other investments we made in 2021, including our new data center, will flow into annual expenses for 2022, likely resulting in a mid-20% increase in total expenses next year prior to hiring any more people or making additional investments during 2022. Before providing 2022 guidance in February, we wanted to share some additional information regarding the sale of MoPub. The sale is expected to close in Q1, and while the associated product, engineering, and go-to-market teams are largely expected to shift to direct response, SMB, and commerce upon closing, it will take time for their work to deliver results. As a result, we do not expect to recoup the total revenue loss associated with the sale of MoPub in 2022, which is estimated to be between $200 and $250 million. Despite some expected 2022 revenue loss, there are no changes to our goal of generating $7.5 billion or more of annual revenue in 2023 with an increased focus and additional resources working on increasing our market share within the ~$150 billion and growing addressable market for ads on our website and apps.” Shares of Twitter gained 2% following earnings and outlook.
Internal Facebook documents collected by whistleblower Frances Haugen show employees touted its scale and dominance in presentations, including showing 78% of U.S. adults and nearly all teens use its services, contradicting the company’s own public assertions that it is locked in fierce competition with rivals, Politico’s Leah Nylen reported. This report comes as the company faces pressure from a number of regulators for anti-competitive practices. Facebook’s goal, employees said in a 2021 presentation, is to be a “super app” that consumers use for everything from sharing life moments with friends and building community to reading the news and watching entertaining videos, according to the documents. The records are among many disclosures that Haugen’s legal counsel made to the Securities and Exchange Commission and provided in redacted form to Congress. The disclosures also could farther the antitrust lawsuit that the Federal Trade Commission launched against the company last year, which aims to separate Instagram and the messaging app WhatsApp from Facebook. The FTC has reportedly struggled in court to define key elements of the case, including what a social network is and how Facebook dominates that market.
Last week, we noted the Bloomberg and Reuters’ reports that PayPal (PYPL) was in talks to acquire Pinterest (PINS) for $70 per share. While analysts came out for and against a potential tie up and shares of both companies moved quite a bit, the online payments company put an end to any speculation. On Monday, in response to market rumors regarding a potential acquisition, PayPal stated that it is “not pursuing an acquisition of Pinterest at this time.” PayPal shares gained 5% as Pinterest stock fell over 14% following the statement.
TRUMP’S NEW SOCIAL MEDIA PLATFORM:
There seems to be a new rival popping up in the social media space. On Thursday, Shares of Digital World Acquisition Corp. (DWAC) skyrocketed following news that Trump Media & Technology Group has entered a definitive merger agreement with the special purpose acquisition company that will result in Trump Media & Technology Group becoming a publicly listed company, subject to regulatory and stockholder approval. The transaction values Trump Media & Technology Group at an initial enterprise value of $875M, including debt, with a potential additional earnout of $825M in additional shares at the valuation they are granted for a cumulative valuation of up to $1.7B depending on the performance of the stock price post-business combination. Trump Media & Technology Group will create a social network called “Truth Social” that is now available for pre-order in the Apple App Store. Truth Social network will initially launch for invited users next month and is expected to be available nationwide in early 2022, the company said. Shares of Digital World Acquisition Corp. have doubled multiple times since the announcement and now sit at $67.85. Naturally, the deal was met with both skepticism and excitement alike. Iceberg Research said via Twitter, “We are short $DWAC. Now that initial excitement has passed, we see only risks for investors in near future. Based on Trump’s track record, at current price, renegotiation is likely to keep more of the merged company for him. No opinion on the probability of success of TMTG. But SPAC holders don’t own a piece of this project yet. Trump has leverage, not them.” On the other side, U.S. Representative Marjorie Taylor Greene, a Republican from Georgia, invested up to $50,000 in the special purpose acquisition company, CNBC’s Thomas Franck and Yun Li reported. According to a disclosure, Green bought a stake in DWAC on Friday worth at least $15,000 but no more than $50,000, the authors note.
A new whistleblower affidavit submitted by an ex-Facebook worker claims that the social media giant values growth and profits over combatting hate speech, misinformation, and other threats, the Washington Post’s Craig Timberg noted, citing a copy of the document. The allegations, which were brought forth under penalty of perjury, echoed similar sentiments shared by Frances Haugen, another former Facebook employee turned whistleblower whose testimony before Congress this month ratcheted up calls for federal action against the company, the author said.
CFPB CHECKS IN:
The Consumer Financial Protection Bureau, or CFPB, announced that it has issued a series of orders to collect information on the business practices of large technology companies operating payments systems in the United States. The information will help the CFPB better understand how these firms use personal payments data and manage data access to users so the Bureau can ensure adequate consumer protection. “The CFPB’s work is one of many efforts within the Federal Reserve System to make payments safer, faster, and more competitive,” it stated. The initial orders were sent to Amazon (AMZN), Apple (AAPL), Facebook, Google (GOOG, GOOGL), PayPal and Square (SQ). The Bureau will also be studying the payment system practices of Chinese tech giants, including Alipay (BABA) and WeChat Pay, it stated. “Big Tech companies are eagerly expanding their empires to gain greater control and insight into our spending habits. We have ordered them to produce information about their business plans and practices,” said CFPB Director Rohit Chopra.
ZUCKERBERG NAMED DEFENDANT IN LAWSUIT:
D.C. Attorney General Karl Racine said yesterday that he added Mark Zuckerberg as a defendant in his lawsuit against Facebook. “Our continuing investigation revealed that he was personally involved in decisions related to Cambridge Analytica and Facebook’s failure to protect user data,” Racine said via Twitter. “My office filed our lawsuit in 2018, and since then, we’ve reviewed hundreds of thousands of pages of documents produced in litigation and completed a wide range of depositions including former employees and whistleblowers. This lawsuit is about protecting the data of half of all District residents and tens of millions of people across the country. We’ve taken our obligation to investigate wrongdoing very seriously-and Facebook should take its responsibility to protect users just as seriously.”
Originally Posted on October 27, 2021 – #SocialStocks: FTC Looks Into Internal Research On Harmful Instagram Content
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