#SocialStocks: Meta and Snap experience contrasting earnings outcomes

Meta works on standards for AI content ahead of elections, Snap announces layoffs 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.

MERITOCRACY: 

Zoom Video (ZM) fired its team focused on diversity, equity and inclusion initiatives as part of its recent round of job cuts, Brody Ford and Jeff Green of Bloomberg reported, citing a company memo. Zoom will instead work with external consultants to engage “all of our employees” with a focus on “inclusion,” Chief Operating Officer Aparna Bawa wrote to staff last week, Bloomberg noted.

AI IMPACT ON ELECTIONS: 

Meta Platforms (META) announced: “We’re working with industry partners on common technical standards for identifying AI content, including video and audio. In the coming months, we will label images that users post to Facebook, Instagram and Threads when we can detect industry standard indicators that they are AI-generated. We’ve labeled photorealistic images created using Meta AI since it launched so that people know they are ‘Imagined with AI.'” Nick Clegg, Meta’s president of global affairs, said “We’re taking this approach through the next year, during which a number of important elections are taking place around the world. During this time, we expect to learn much more about how people are creating and sharing AI content, what sort of transparency people find most valuable, and how these technologies evolve. What we learn will inform industry best practices and our own approach going forward.” This came after Meta’s Oversight Board decided to uphold the company’s decision to not remove a maliciously edited video of President Joe Biden, but urged the company to update its manipulated media policy.

PREPARED TO GROW: 

Microsoft (MSFT), Google (GOOGL), Meta and Amazon (AMZN) all extended the working life of their servers, which added almost $10B to their profits in the last two years, Tabby Kinder, Camilla Hodgson, and Cristina Criddle of The Financial Times reported. The move will also help soften the blow of future costs, such as developing generative AI. The move resulted in a $6B boost to income at Google and Microsoft last year. Meanwhile, Amazon has extended the lifespan of their assets further this month, which will translate into more profits this year.

LAYOFFS: 

In a regulatory filing, Snap (SNAP) announced plans to reduce its global headcount by approximately 10% of its global full time employees. “In order to best position our business to execute on our highest priorities, and to ensure we have the capacity to invest incrementally to support our growth over time, we have made the difficult decision to restructure our team. As a result, we currently estimate that we will incur pre-tax charges in the range of $55 million to $75 million, primarily consisting of severance and related costs, and other charges, of which $45 million to $55 million are expected to be future cash expenditures. The majority of these costs are expected to be incurred during the first quarter of 2024. Potential position eliminations in each country are subject to local law and consultation requirements, which may extend this process into the second quarter of 2024 or beyond in certain countries.” Several senior executives were included in its layoffs

IF YOU WANT THINGS DONE: 

Meta plans to deploy its second-generation in-house chips, referred to internally as Artemis, into its data centers in 2024, alongside “commercially available GPUs,” Reuters’ Katie Paul, Stephen Nellis and Max A. Cherney wrote. The chip could help reduce Meta’s dependence on Nvidia (NVDA) chips, the authors contended.

HAZARDOUS SELFIES: 

The Consumer Product Safety Commission said Snap will recall about 71,000 Pixy selfie camera drones because their batteries pose a fire hazard. Snap has received four reports of the battery overheating and bulging, resulting in one minor battery fire and one minor injury.

ARK: 

Last week, Cathie Wood’s ARK Investment bought 235.,800 shares of Pinterest.

EARNINGS RECAP: 

Meta Platforms beat analyst expectations for revenue and EPS in its fourth quarter earnings report. Meta’s board of directors also declared a quarterly cash dividend of 50c per share and increased its share repurchase program by $50B. “We had a good quarter as our community and business continue to grow,” said Mark Zuckerberg, Meta founder and CEO. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.” The social media giant’s first quarter guidance also surpassed consensus estimates. Regarding its expectations of expenses in FY24, Meta said: “We expect full-year 2024 total expenses to be in the range of $94-99 billion, unchanged from our prior outlook. We continue to expect a few factors to be drivers of total expense growth in 2024: First, we expect higher infrastructure-related costs this year. Given our increased capital investments in recent years, we expect depreciation expenses in 2024 to increase by a larger amount than in 2023. We also expect to incur higher operating costs from running a larger infrastructure footprint. Second, we anticipate growth in payroll expenses as we work down our current hiring underrun and add incremental talent to support priority areas in 2024, which we expect will further shift our workforce composition toward higher-cost technical roles. Finally, for Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem. We anticipate our full-year 2024 capital expenditures will be in the range of $30-37 billion, a $2 billion increase of the high end of our prior range. We expect growth will be driven by investments in servers, including both AI and non-AI hardware, and data centers as we ramp up construction on sites with our previously announced new data center architecture. Our updated outlook reflects our evolving understanding of our artificial intelligence capacity demands as we anticipate what we may need for the next generations of foundational research and product development. While we are not providing guidance for years beyond 2024, we expect our ambitious long-term AI research and product development efforts will require growing infrastructure investments beyond this year.” On Its earnings conference call, Meta noted that it expects FY24 capital expenditures of and that the company will no longer report monthly active users and daily active users for Facebook. Wolfe Research raised the firm’s price target on Meta Platforms. The company’s Q4 results and Q1 guidance exceeded Street estimates and buy-side bogeys handily, the firm told investors in a research note. The firm says Meta’s artificial intelligence initiatives are driving sustained revenue acceleration despite tough compares.

Snap reported EPS higher than estimates, but fell short in the revenue department. The company noted Q4 daily active users of 414M, up 10% year-over-year. Snap’s Q1 revenue outlook came in right in line with expectations with daily active users anticipated at $420M in the next quarter. The company said, “As we enter Q1, we anticipate continued growth of our global community and, as a result, our guidance range is built on the assumption that DAU will be approximately 420 million in Q1. We are focused on executing against our roadmap to deliver improvements to our direct-response advertising platform to drive improved results for our advertising partners and accelerate topline growth. Our guidance range is for revenue of $1,095M to $1,135M, implying year-over-year revenue growth of 11% to 15%. Based on this revenue range and our investment plans for the quarter, we estimate that Adjusted EBITDA will be between negative $55M and negative $95M in Q1.” Shares fell 28% in after-hours trading. Guggenheim decreased the firm’s price target on Snap. Snap management “again provided numerous positive metrics,” but critical key performance indicators like revenue growth, domestic usage, and the spending outlook disappointed, the analyst told investors in a post-earnings note. The firm’s lower target reflects lower estimates and “acknowledging that our confidence in incremental momentum is shaken,” the analyst added.

ADDITIONAL ANALYST COMMENTARY: 

Jefferies initiated coverage of Sprout Social (SPT). The company has a market leading platform and strong partnerships, along with favorable secular tailwinds, product expansion, and increased focus on upselling, the firm noted. This provides the company with runway for over 25% annual growth and $1B in revenues by 2028, contended Jefferies.

KeyBanc increased the firm’s price target on Pinterest (PINS). The firm expects Pinterest to report a solid Q4 and guide to 15%-17% year-over-year revenue growth. KeyBanc’s view reflects a solid ad market for retail/e-commerce and CPG, as well as product innovation and partnerships. The firm also expects these tailwinds to continue into 2024.

Wells Fargo lowered the firm’s price target on Snap. The firm noted Snap missed Q4 2023 Wells/consensus revenue by 5%/2%, while guiding Q1 HE to +15% year-over-year vs. a buy-side bar of high-teens. Wells overestimated the pace of improvement at Snap and accordingly revises its FY24 revenue estimate to +14% year-over-year, versus +19% prior.

Truist raised the firm’s price target on Meta. The company’s “stronger” Q4 results, increased buyback, and first dividend keep the firm positive on the stock, the firm said in a research note. The results reflect accelerating growth in the ads biz in Q4 with sustained momentum in Q1, as well as higher user engagement, success w/ Reels and Messaging ads, and growing AI integrations that bode well for FY24 growth, the firm concluded.

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Originally Posted February 7, 2024 – #SocialStocks: Meta and Snap experience contrasting earnings outcomes