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#SocialStocks: TikTok Perceived National Security Threat Despite CEO Appearance

Posted March 30, 2023 at 9:45 am
Andrew Perez
The Fly

Meta to reduce bonuses and stock awards, Pinterest discloses restructuring, 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.

BOGUS BONUS: 

Meta Platforms (META) plans to reduce the bonus multiplier from 85% to 65% and restricted stock awards for staff who “met most expectations” in the 2023 year-end review, The Wall Street Journal’s Salvador Rodriguez reported. According to an internal memo, in addition to employees receiving a smaller percentage of their bonus and restricted stock award due in March 2024, the Facebook parent will more frequently assess employee performance. “We understand that while this is a significant change that might disappoint some people, it aligns with our continued focus on maintaining a high-performance culture,” the memo said. CEO Mark Zuckerberg previously said 2023 would be the “year of efficiency.”

RESTRUCTURING: 

In a regulatory filing, Pinterest (PINS) disclosed that on March 24, the audit and risk committee of the board of directors of the company approved a restructuring plan intended to support the company’s corporate strategy, improve efficiency and position the business in light of the ongoing macroeconomic environment. “This consists of a plan to sublease the company’s leased office space at 505 Brannan Street in San Francisco, which the company will cease occupying by the end of first quarter of 2023, and abandoning certain other leased office spaces, which are in addition to a workforce reduction of approximately 4% that the company commenced in February 2023. Decisions regarding the elimination of positions are subject to local law and consultation requirements in certain countries. The company continues to review its cost structure and operating plan and may determine to take additional actions in the future in connection with the plan. The company estimates that it will incur approximately $100.0M-$125.0M in charges in connection with the plan. These charges consist primarily of $95.0M-$110.0M in non-cash impairment and abandonment charges related to the company’s lease right-of-use assets and leasehold improvements. Approximately $95.0M-$115.0M of the aggregate charges in connection with the plan are expected to be incurred in the first quarter of 2023. Approximately $2.0M-$4.0M of the aggregate charges in connection with the plan are expected to result in future cash expenditures. The company currently intends to continue to pay all contractual rent payments but plans to sublease all or a portion of our office space at 505 Brannan Street and negotiate early lease terminations, which could materially affect the company’s cash flows. The actual amount and timing of any resulting impact to cash flows will depend on the outcome of any negotiations with landlords and potential subtenants. The actions associated with the office space reductions under the Plan are expected to be fully complete in 2023,” the filing said.

UBS upgraded shares of Pinterest. The analyst views Pinterest as an “event-driven positive catalyst and an estimate revision opportunity.” The company’s moves in advertising technology can drive a “step function” improvement in its revenue growth, the analyst tells investors in a research note. The firm says early advertiser feedback on the LiveRamp (RAMP) partnership alone suggests “significant improvement” in ad efficacy that should drive budget while further monetization partnerships could unlock incremental demand.

TIKTOK BILL ADVANCING: 

U.S. House of Representatives Speaker Kevin McCarthy said on Sunday lawmakers will move forward with legislation to address national security worries about TikTok, alleging China’s government had access to the short video app’s user data, Reuters’ Kanishka Singh and Leah Douglas reported. In the United States, there are growing calls to ban TikTok, owned by China-based company ByteDance, or to pass bipartisan legislation to give President Joe Biden’s administration legal authority to seek a ban. Devices owned by the U.S. government were recently banned from having the app installed.

The situation is still uncertain, but recent headlines and political activity increase the debate around the possibility of a potential ban or block of some nature of TikTok in the U.S., Morgan Stanley told investors. TikTok being blocked from use in the U.S. would impact 95M Americans using the product an average of about 90 minutes per day, putting 53B hours of digital media consumption time “up for grabs,” the firm estimates. While the firm expects many forms of media to benefit in the case of such a hypothetical ban, Meta’s Reels, YouTube (GOOGL) Shorts and Snap’s (SNAP) Spotlight are likely best positioned in such a scenario and each platform’s potential earnings upside would be driven by time captured combined with their varying monetization rates, the firm told investors.

TikTok CEO Shou Zi Chew appeared before Congress this week to try to reassure lawmakers that Americans’ data wasn’t being transferred to the Chinese government and that the company took security and privacy seriously. But his appearance didn’t seem to mollify the growing number of national-security officials and lawmakers in both parties who see the app as a danger, The Wall Street Journal’s Byron Tau wrote. The government has a range of economic powers it could use against TikTok’s core business interests, but efforts to restrict Americans’ access to its content would be more vulnerable to legal challenges and enforcement difficulties. In 2020, then-President Donald Trump tried to ban TikTok by executive order, only to have two federal judges express doubt that the president had the power to do so, the author noted.

Late last week, in response to a Biden administration demand that TikTok divest itself from parent ByteDance or face a nationwide ban, China said it would strongly oppose any forced sale of the video app, according to The Wall Street Journal. A forced sale by Washington could damage the confidence of Chinese investors in the U.S. and said any sale or spinoff of TikTok would involve technology-export issues that would need to be handled according to Chinese law and with the approval of the Chinese government, China’s Commerce Ministry says. Shu Yuting, a spokeswoman for the ministry. She said a forced sale would severely undermine global investors, “including Chinese investors” confidence in investing in the U.S.

INTEGRATION: 

Wix.com Ltd. announced expanded integrations with WhatsApp, Instagram and Messenger where Wix users can now connect their business accounts directly with their Wix Inbox. By integrating these channels, business owners can more efficiently manage all communication and interactions with their customers from one inbox in one place.

LEVERAGING ARTIFICIAL INTELLIGENCE: 

Zoom Video (ZM) announced the expansion of Zoom IQ. The company also announced it will use OpenAI to bolster its unique federated approach to AI based on flexibility. “Zoom has long built AI solutions into our products to empower customers to be more productive,” said Smita Hashim, chief product officer at Zoom. “We are excited to bring many more capabilities with new large language models. Our unique approach to AI will give customers the flexibility they want and help significantly improve collaboration and customer relations.”

REEVALUATING: 

Elon Musk said Twitter (TWTR) employees will receive stock awards based on a roughly $20B valuation, less than half of the $44B price he acquired the company for last year, The Wall Street Journal’s Alexa Corse reports, citing an email reviewed by the publication. Musk in the note to staff said he was optimistic about the social-media company’s future. “I see a clear, but difficult, path to a greater than$250B valuation,” meaning stock granted now would be worth 10 times more, he said. Musk also said in the email that Twitter is being reshaped so rapidly that the company “can be thought of as an inverse startup.” He said radical changes have been necessary in part to ensure that Twitter didn’t go bankrupt, according to the email.

MADE IN THE UNITED STATES: 

The Meta Quest Pro, Meta’s virtual reality device which went on sale in October, uses chips made by U.S. companies as core components, Nikkei Asia’s Norio Matsumoto, Atsushi Enomoto, and Kentaro Iwamoto reported, citing a teardown of the device.

LEVERAGING AUGMENTED REALITY: 

Snap unveiled AR Enterprise Services, or ARES, a new enterprise solution to enable businesses to integrate Snap’s Augmented Reality, or AR, into their owned and operated channels with ease and at scale. Through this offering, consumers will enjoy immersive and personalized experiences with their favorite brands, with a suite of advanced tools designed to increase confidence in their purchases. ARES’ inaugural offering is for retail, and among the first group of customers are Goodr, Princess Polly, and Gobi Cashmere. Each of these companies have been using various products from Fit Finder to AR Try-On, which are features that make up our new Shopping Suite.

ADDITIONAL ANALYST COMMENTARY: 

Guggenheim raised the firm’s price target and maintained a Neutral rating on the shares after updating the firm’s model to better reflect its view of 2023 core trends and the company’s cost controls. The firm’s recent advertising industry discussions suggest overall advertising demand stability relative to Q4 trends, with “modest differences” between platforms and verticals, the analyst tells investors.

Guggenheim also raised the firm’s price target on Meta Platforms after updating the firm’s model to better reflect its view of 2023 core trends and the company’s cost controls. The firm’s recent advertising industry discussions suggest overall advertising demand stability relative to Q4 trends, with “modest differences” between platforms and verticals, the analyst tells investors. The firm’s higher target also reflects increased confidence around leadership decision-making, Guggenheim added.

DA Davidson lowered the firm’s price target on shares of Pinterest and kept a Neutral rating on the shares after the company announced restructuring actions. While the firm is “encouraged” by Pinterest’s additional efforts to manage expenses, the February layoffs are an indication that trends were weaker-than-expected for Q1, the analyst tells investors in a research note.

Barclays raised the firm’s price target on Meta. Meta remains the firm’s preferred name among mega cap technology. The shares have re-rated significantly in the past few months, and while the alpha versus Alphabet and Amazon.com (AMZN) may have been realized on recent cost cuts, the bull case around how generative artificial intelligence could unlock value has not, Barclays told investors in a research note. The firm says Meta could be the best name in consumer internet to benefit from the coming wave of generative AI applications.

Rosenblatt initiated coverage of Zoom Video with a Neutral rating. The firm views the stock’s current valuation as “fair” given saying Zoom’s growth profile of 1.6% falls below the 16% average of its peer group. The firm will look to be more constructive on the name when revenue contribution, retention levels, international contribution and growth of its cohort solutions resumes.

Originally Posted March 29, 2023 – #SocialStocks: TikTok perceived national security threat despite CEO appearance

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