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#SocialStocks: Supreme Court provides input on two social media issues

Posted July 5, 2024 at 9:30 am
Andrew Perez
The Fly

 Trump Media to join Russell indexes, Meta found to be in breach of DMA by EC and other notable stories from this week 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.

LET THE GAMES BEGIN: 

Meta Platforms (META) is looking to bring generative AI technology to metaverse games, including VR, AR and mixed reality games, TechCrunch’s Kyle Wiggers reported. According to a job listing, Meta is seeking to research and prototype “new consumer experiences” with new types of gameplay driven by generative AI, like games that “change every time you play them” and follow “non-deterministic” paths. The focus will be Horizon, Meta’s family of metaverse games, apps and creation resources, Wiggins wrote.

SUPREME COURT WEIGHS IN: 

SCOTUS declined to hear teen’s bid to revive Snapchat (SNAP) lawsuit, according to Reuters. The lawsuit accuses Snapchat of failing to protect minors from sexual predators, Reuters said.

Separately, The Supreme Court has ordered lower courts to take another look at Texas’ and Florida’s social media laws, saying neither lower court conducted proper analysis of First Amendment challenges on how social media companies can moderate the content posted to their platforms, Kaia Hubbard and Melissa Quinn of CBS News reported. “The question in such a case is whether a law’s unconstitutional applications are substantial compared to its constitutional ones. To make that judgment, a court must determine a law’s full set of applications, evaluate which are constitutional and which are not, and compare the one to the other,” Justice Elena Kagan wrote. “Neither court performed that necessary inquiry.”

PROCEEDS: 

Trump Media & Technology (DJT) announced that the cash exercise of warrants between June 20 and July 1, has resulted in more than $105M in cumulative proceeds. Additionally, approximately $41M of restricted cash has recently become unrestricted. As a result, the company had more than $350M in cash-and no debt-on its balance sheet as of July 1.

SHARE SALE: 

In a regulatory filing, Pinterest (PINS) disclosed that its CFO Julia Donnelly sold 30.3K shares of common stock on June 27th in a total transaction size of $1.34M.

Additionally, Meta disclosed in a filing that its general counsel Jennifer Newstead sold 905 shares of common stock on June 25 in a total transaction size of $450K.

LICENSE AGREEMENT: 

Adeia (ADEA) has entered into a multi-year license agreement with X Corp, the owner of the social media platform formerly known as Twitter. The agreement also resolves all of the outstanding litigation between the companies. “We are pleased to enter into this agreement and resolve the outstanding litigation with X Corp., a leading technology company and social networking platform, furthering our well-established intellectual property licensing business,” said Kevin Tanji, chief legal officer at Adeia. Adeia’s fundamental innovations power their customers’ next-generation products, delivering breakthroughs in digital experiences for consumer and enterprise applications. The company’s IP shapes the way millions of people explore and experience entertainment and enhances billions of devices in an increasingly connected world.

RUSSELL INDEXES: 

Trump Media & Technology Group announced that as part of the 2024 annual reconstitution of the Russell indexes, TMTG has been selected to be included in the Russell 1000 and broad-market Russell 3000 Indexes effective after the U.S. market closed on June 28.

CHARACTER.AI: 

Character.AI held talks over partnerships with Google (GOOGL), Meta, and xAI, to access the partnering company’s computing in return for sharing some of its IP, The Information’s Kalley Huang noted.

DMA BREACH: 

The European Commission has informed Meta of its preliminary findings that its “pay or consent” advertising model fails to comply with the Digital Markets Act. In the Commission’s preliminary view, this binary choice forces users to consent to the combination of their personal data and fails to provide them a less personalized but equivalent version of Meta’s social networks. The Commission takes the preliminary view that Meta’s “pay or consent” advertising model is not compliant with the DMA as it does not meet the necessary requirements set out under Article 5(2). In particular, Meta’s model: Does not allow users to opt for a service that uses less of their personal data but is otherwise equivalent to the “personalized ads” based service. Does not allow users to exercise their right to freely consent to the combination of their personal data. By sending preliminary findings, the Commission informs Meta of its preliminary view that the company is in breach of the DMA. This is without prejudice to the outcome of the investigation. Meta now has the possibility to exercise its rights of defense by examining the documents in the Commission’s investigation file and replying in writing to the Commission’s preliminary findings. The Commission will conclude its investigation within 12 months from the opening of proceedings on March 25, 2024. In case of non-compliance, the Commission can impose fines up to 10% of the gatekeeper’s total worldwide turnover. Such fines can go up to 20% in case of repeated infringement. Moreover, in case of systematic non-compliance, the Commission is also empowered to adopt additional remedies such as obliging a gatekeeper to sell a business or parts of it or banning the gatekeeper from acquisitions of additional services related to the systemic non-compliance. The Commission continues its constructive engagement with Meta to identify a satisfactory path towards effective compliance.

ONE OF MANY: 

Meta CEO Mark Zuckerberg said in an interview with Kane Sutter that he seriously believes there will not be “Just one AI,” and even took a moment to criticize efforts of unnamed rivals who seem to believe they are “creating God,” TechCrunch’s Sarah Perez wrote. “I don’t think that AI technology is a thing that should be kind of hoarded and … that one company gets to use it to build whatever central, single product that they’re building,” Zuckerberg said. “I find it a pretty big turnoff when people in the tech industry … talk about building this ‘one true AI,'” he continued. “It’s almost as if they kind of think they’re creating God or something and … it’s just – that’s not what we’re doing,” he said. “I don’t think that’s how this plays out.”

AI CHARACTERS: 

Zuckerberg said the social media giant will start surfacing AI characters made by creators though Meta AI studio on Instagram, with the first tests to occur in the U.S., TechCrunch’s Ivan Mehta reported. In a post on his broadcast channel, the Facebook founder said that these chatbots will be clearly identified as AI so users are aware, the author says. “Rolling out an early test in the US of our AI studio so you might start seeing AIs from your favorite creators and interest-based AIs in the coming weeks on Instagram. These will primarily show up in messaging for now, and will be clearly labeled as AI,” he said. “It’s early days and the first beta version of these AIs, so we’ll keep working on improving them and make them available to more people soon,” Zuckerberg added.

ANALYST COMMENTARY: 

Loop Capital is “increasingly optimistic” about Meta’s position and remains uncertain about Alphabet’s Google’s. Generative artificial intelligence appears to have open-ended potential for the technology sector “and the arms race is fully on,” the analyst told investors in a research note. The firm said the path to generating return on investment, revenue models and timeframe are still big questions for investors. Loop believes Meta’s strategy to advance AI tools for creators and businesses is taking shape and “makes a lot of sense.” Meta also appears to be spending meaningfully more on tech infrastructure than Google, perhaps 50% to 60% more over the last two years, according to the firm. Loop said Alphabet’s historic valuation premium has shifted to now favor Meta slightly. The valuation delta will increasingly favor Meta over the next several quarters and likely the next few years, the firm contends.

Raymond James raised the firm’s price target on Meta Platforms.

Baird lowered the firm’s price target on Sprout Social (SPT). The analyst expects the shares to be range bound into early-August given concern around fiscal 2024 estimates. As such, it remains on the sidelines.

Originally Posted July 2024 – #SocialStocks: Supreme Court provides input on two social media issues

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