#SocialStocks: Twitter Rebrands to X

Meta to report second quarter results, new TikTok feature aims to compete with Instagram Stories 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.

THREAD LIGHTLY: 

State-backed news outlets from Russia and other authoritarian governments have joined Meta Platforms (META)‘ Threads, posting propaganda such as a fake video of President Biden, Newley Purnell of The Wall Street Journal reported. Unlike on its other social media platforms, verified accounts on Meta’s Threads are not labeled as state-controlled media.

Meta’s Threads is launching a Following feed as well as the ability to see posts you have liked in your settings, TechCrunch’s Ivan Mehta and Sarah Perez reported. In addition, the new update includes categories for users to sort Activity feeds, allowing them to filter by Follows, Quotes, and Reports, the authors note. “Threads started rolling out an option for a chronological feed of only people you’re following and added translations too. More to come!” Mark Zuckerberg said in a post on his Instagram Channel.

LARGE LANGUAGE MODELS: 

Shares of Meta Platforms after moving higher after New Street upgraded its rating on the name. The upgrade follows Meta’s release of Llama 2 and the firm “hearing very positive feedback” on the company’s artificial intelligence efforts. Last week’s launch of Llama 2 should help continue Meta’s valuation expansion momentum, New Street told investors in a research note. In addition, with the stock down 8% over the past three trading sessions, Meta’s upcoming Q2 results on Wednesday “are (somewhat) de risked,” the firm wrote. It expects the continued ramp of Reels and growing advertiser adoption of its Advantage suite of ad products to drive outperformance relative to the digital advertising market over the near term. Meta is up 1% to $294.73 in premarket trading.

Alibaba (BABA) plans to let business customers use Meta’s Llama 2 to build apps, the first Chinese company to do so, Reuters’ Josh Ye noted. Meta released Llama 2, a commercial version of Llama, this month and said its preferred partner for Llama 2 was Microsoft (MSFT) but that it would also be available through other partners.

EARNINGS RECAP/PREVIEW: 

Meta Platforms, the parent company of Facebook, Instagram, WhatsApp, Oculus, Threads and other brands, is scheduled to report second quarter results after the market closes. Last quarter, Meta reported earnings of $2.20 per share on revenue of $28.65B. Meta noted that in March it announced three rounds of planned layoffs to further reduce its company size by approximately 10,000 employees across the Family of Apps and Reality Labs segments. “In connection with these layoffs, we expect to incur total pre-tax severance and related personnel costs of approximately $1B, of which $523M was recognized during the first quarter of 2023 and the remaining charges will be substantially recorded by the end of 2023…Excluding these charges, our operating margin would have been four percentage points higher and our diluted EPS would have been 44c higher for the first quarter of 2023,” Meta stated. Mark Zuckerberg, Meta founder and CEO, said at the time: “We had a good quarter and our community continues to grow. Our AI work is driving good results across our apps and business. We’re also becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision.” The company noted that it expected second quarter revenue to be in a range of $29.5B-$32B, versus the then-current consensus of $29.48B. Current consensus EPS and revenue forecasts for Meta’s June-end quarter stand at $2.89 and $31.06B, respectively, according to data from Bloomberg.

Shares of Snap (SNAP) sunk following second quarter results last night. The company beat analyst expectations and provided revenue guidance above consensus. Additionally, Snap noted daily active users, or DAUs, were up 14% in Q2. DAUs were 397M in Q2, an increase of 50M, or 14% year-over-year. DAUs increased sequentially and year-over-year in each of North America, Europe, and Rest of World. Total time spent watching Spotlight content more than tripled year-over-year, and Spotlight reached more than 400M monthly active users on average in Q2, an increase of 51% year-over-year. The company said, “As we enter Q3, we anticipate continued robust growth in our global community and, as a result, our financial guidance for Q3 is built on the assumption that DAU will reach 405 million to 406 million in Q3. From a revenue perspective, our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited. Our guidance range for Q3 revenue reflects our best estimate of these factors, with total revenue estimated to be between $1,070 to $1,130 million implying negative 5% to flat year-over-year growth. At this level of revenue, we estimate that Adjusted EBITDA will be between negative $50 million and negative $100 million reflecting estimated infrastructure costs per DAU of $0.79 to $0.84 in Q3, as we continue to invest in ML, AI, and other infrastructure to improve the performance of our ad platform, drive deeper content engagement, and bring innovative product experiences to our community. This forecast also assumes modest sequential headcount growth as we continue to carefully calibrate our operating investments to focus on the inputs most essential to the acceleration of topline growth.”

REJECTED: 

Meta Platforms offered to curb the use of competitors’ advertising data for its Facebook Marketplace online classified service in an attempt to settle a European Union antitrust investigation, but it was not accepted by regulators, Foo Yun Chee of Reuters wrote, citing people familiar with the matter. Meta’s proposal included limiting the use of advertising data to develop products that compete with advertisers, sources told Reuters.

X MARKS THE SPOT: 

An X is going to replace Twitter’s (TWTR) blue bird. Elon Musk said in a tweet on Sunday that, “X.com now points to URL Interim X logo goes live later today.” Musk’s X Corp owns Twitter.

The social media firm’s new CEO, Linda Yaccarino noted the firm’s success amid its re-brand to X, in a company-wide memo obtained by CNBC, wrote Ashley Capoot for the news outlet on Monday. The new CEO made “vague claims around X’s high usage,” amid criticism of the rebrand, noted the CNBC story.

Elon Musk’s decision to rebrand Twitter as X could be complicated legally, as companies including Meta and Microsoft already have intellectual property rights to the same letter, Reuters’ Blake Brittain reported. Meta owns a federal trademark registered in 2019 covering a blue-and-white letter “X” for fields including software and social media, while Microsoft has owned an X trademark since 2003 related to communications about its Xbox video-game system, Brittain writes.

INSTAGRAM STORIES COMPETITOR: 

TikTok unveiled text posts on Monday in a move to compete with Instagram to add text-based content creation, noted Lawrence Bonk for Engadget. The new text-composition feature lets users share written content like their stories, poems, lyrics, noted the story. “If this sounds a bit like using Instagram Stories to create a text-only post, you’re certainly onto something,” wrote Engadgets’ Lawrence Bonk in the story.

SUBSCRIPTIONS: 

Instagram is expanding access to its Subscriptions feature. Meta’s Instagram said on a blog post that, “We introduced Instagram subscriptions as one of those tools last year, giving creators in the U.S. a new way to deepen connections with their most engaged followers while unlocking recurring monthly income. After seeing the value that subscriptions can offer to creators in the U.S., we’re expanding access to the feature to more creators around the world. In the coming weeks, eligible creators in Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, Spain and the United Kingdom will be able access to Subscriptions and start earning through support from their fans. We plan to continue rolling out access globally in the coming months.

AI PROMISE: 

Amazon (AMZN), Anthropic, Google (GOOG), Inflection, Meta, Microsoft and OpenAI have agreed to make a series of promises to the White House to address risks posed by artificial intelligence, Makena Kelly of The Verge reported. Some of the promises include investments in cybersecurity, discrimination research, and a watermarking system informing the content is AI-generated. These promises were made voluntarily and there are currently no consequences if the companies fail to meet these promises.

ANALYST COMMENTARY: 

New Street upgraded Meta Platforms. The firm is “hearing very positive feedback” on Meta’s artificial intelligence efforts. While the stock is up 140% this year, last week’s launch of Llama 2 should help continue the momentum, New Street told investors in a research note. Llama 2 is the next generation of Meta’s open source large language model.

Truist raised the firm’s price target on Snap. The company’s Q2 results topped expectations but its guidance missed on higher investment levels, the firm told investors in a research note. Snap continues to reposition itself for growth through investments in AI, user engagement and go-to-market, but while green shoots are emerging with Q2 seeing 20% growth in active advertisers, the company is also more vulnerable than larger ad platforms given its under-indexing to SMBs and its evolving first-party data/measurement solutions to offset signal loss.

On the other hand, Stifel lowered the firm’s price target on Snap. Snap posted “a modest beat” in Q2, but its outlook was weaker, particularly against expectations that the firm believes were “creeping up into the print,” the firm told investors. While management having offered official guidance for the first time since early 2022 “offers some comfort that perhaps things are stabilizing,” the firm remains on the sidelines for now.

Stifel raised the firm’s price target on Pinterest (PINS). Ahead of the company’s upcoming earnings report, the firm is “slightly” revising higher its digital advertising growth forecasts for 2023 and 2024, though it is only expecting “slightly better results” for ad-based names relative to the top-line outperformance witnessed in Q1.

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Originally Posted July 26, 2023 – #SocialStocks: Twitter rebrands to X