#SocialStocks: Meta Faces Scrutiny for Israel-Hamas War Content Moderation

TikTok’s e-commerce sector fuels growth, UK government explores harm to children 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.

PROMOTION: 

Sprout Social (SPT) announced the promotion of Alan Boyce to Chief Technology Officer, CTO. In this role, he will oversee Sprout’s global technology, engineering, IT and compliance organizations. Aaron Rankin will remain at Sprout Social as co-founder focused on supporting the executive team and the strategic direction of the Company, and will continue to serve on Sprout Social’s Board of Directors. Boyce joined Sprout in 2010 as the first platform engineer after the founding team.

OVERSIGHT BOARD ON WAR DISCOURSE: 

Meta Platform’s (META) Oversight Board says Meta erred in removing two Israel-Hamas war videos as they were valuable to understanding human suffering, its first expedited cases. “In both cases, the Board overturned Meta’s original decision to remove the content from its platforms but approved the company’s subsequent decision to restore the posts with a warning screen,” the Oversight Board said, while urging Meta to “respond more quickly to changing circumstances on the ground, which affect the balance between the values of voice and safety.”

This decision came after Meta’s moderation of content on Instagram, amid the Israel-Hamas war, has drawn the attention of Massachusetts Senator Elizabeth Warren, wrote Engadget’s Karissa Bell. Senator Warren, “the latest public figure to question how Meta is moderating coverage of the war, was made aware of complaints from media and “human rights groups about inconsistencies in the company’s moderation practices since the start of the war,” noted the Engadget story. “Reports of Meta’s suppression of Palestinian voices raise serious questions about Meta’s content moderation practices and anti-discrimination protections,” the U.S. Senator wrote in a letter to Meta and addressed to Mark Zuckerberg, according to Engadget.

SHARE SALE: 

Cathie Wood’s ARK Investment bought 160K shares of Zoom Video (ZM) on Tuesday

BIG YEAR INCOMING FOR BIG TECH: 

Tech stocks have had a blowout 2023, with the Nasdaq Composite up more than 40%, and the Magnificent Seven – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN), Meta, Nvidia (NVDA), and Tesla (TSLA) – averaging a better than 100% return, Eric J. Savitz wrote in this week’s edition of Barron’s. The rally had three drivers: expectations for a Federal Reserve pivot; a new commitment to cost-cutting from the tech world; and artificial intelligence. The author believes all three of those factors will drive tech stocks higher again in 2024.

TIKTOK PARENT CLEANS UP IN 2023: 

ByteDance experienced a notable surge in sales during 2023, surpassing $110B, Zheping Huang and Manuel Baigorri of Bloomberg reported, citing individuals familiar with the situation. This surge potentially positions the company to outstrip arch-rival Tencent Holdings (TCEHY), indicating that TikTok’s emerging e-commerce sector is propelling growth amid a period of economic challenges. Insiders, who preferred to remain anonymous as the information isn’t public, revealed that the growth of the startup aligned closely with the 30% pace it achieved in 2022. During that time, it reported sales exceeding $80B. This growth occurred despite economic uncertainties in China and increased scrutiny and limitations in crucial markets ranging from the US to India.

EXPLORING REGULATION: 

Prime Minister Rishi Sunak’s UK government is exploring ways to regulate social media access for children under the age of 16, Thomas Seal, Kitty Donaldson, and Jillian Deutsch of Bloomberg reported, citing people familiar with the matter. The Minister plans to start consultation as soon as January to gather evidence of the extent of social media’s potential harm to children, Bloomberg’s sources added. Deliberations are still early, and the policy may not be pursued. Furthermore, while bans were discussed, one source said they were unlikely to be a part of the final plan while another source added measures like a ban or improved parental controls had not been ruled out.

ANALYST COMMENTARY: 

Citi raised the firm’s price target on Snap (SNAP) and reiterated a Neutral rating on the shares. Additionally, the firm raised the its price target on Pinterest (PINS) and maintained a Buy rating on the shares. While North American Internet names largely outperformed in 2023, including through multiple expansion, the firm sees fundamentals as “better positioned going into 2024 than into 2023” and sees a strong set up for performance in 2024, the firm said in its 2024 Internet outlook note. Momentum in the second half of 2023 across the broader Internet sector, and particularly across Online Advertising, eCommerce, Marketplaces, and Online Travel sub-sectors, can continue, says the firm, which believes the Internet sector is stronger than a year ago with most companies having gone through cost reductions and optimizations.

Wells Fargo downgraded Zoom Video to Underweight from Equal Weight. The firm said that while it has “exercised patience with some of the pandemic ‘winners,'” it has become clear over the course of the past year that many are still struggling to find stable footing. Given the lack of clear growth/margin strategy going forward, Wells is expecting an uptick in activist/M&A interest in 2024 aiming to address these challenged models, but isn’t expecting substantive fixes in all cases.

Raymond James resumed coverage of Pinterest with an Outperform rating. The company has efficiently transitioned from CPU to GPU recommendation infrastructure, leveraging Nvidia’s (NVDA) CUDA ecosystem to transition from sequential to parallel processing, increasing its compute capacity by 100x with no discernable infrastructure cost headwinds, the analyst told investors in a research note. This was an “impressive feat” that likely benefited from a broad AI talent footprint and should set the company on a trajectory to meet, if not exceed, long-term EBITDA targets in the low-30s, the firm added.

Raymond James resumed coverage of Snap with an Outperform rating. The firm’s “Ad stack revamp” thesis is based on the company’s attracting incremental GenZ direct response dollars following a broad-based ad stack re-architecture to address IDFA signal loss, recommendations improvements, campaign tools, and bolstering product/go-to-market functions with the infusion of new talent, the analyst told investors . The firm added that these should collectively set the stage for accelerating strong double-digit direct response growth in FY24 amid a softish landing macro backdrop.

Raymond James analyst Josh Beck resumed coverage of Meta Platforms with a Strong Buy rating. The firm’s “Behind the scenes AI” thesis is rooted in Meta’s internalization of modern AI and ML frameworks, while its rising Reels/C2M adoption are contributing to a multi-year platform engagement tailwind, the analyst contends. The elevated near-term AI investment intensity at Meta should also ease in the years ahead, paving the way for improved incremental margins, the firm added.

Guggenheim upgraded Snap to Buy from Neutral. Guggenheim expects overall digital advertising demand will accelerate in 2024, and that Snap’s revenue growth will outperform as demand drives industry-wide ad price increases and improved relative return for Snap’s ad units, the analyst noted. Guggenheim also expects Amazon Ads expanding ambitions and partnerships to bolster Snap’s advertising growth.

BTIG raised the firm’s price target on Sprout Social and backed a Buy rating on the shares as part of a broader research note previewing the Software space in 2024. In Application Software, the firm is citing its growing optimism around 2024 returning to growth, with key platforms likely to outperform projections for topline growth through improving sales execution and focusing on more refined core operating strategies, the analyst told investors.

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Originally Posted December 20, 2023 – #SocialStocks: Meta faces scrutiny for Israel-Hamas war content moderation