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#SocialStocks: Both Meta and Twitter Face Heightened Antitrust Scrutiny

Posted December 22, 2022 at 3:07 pm
Andrew Perez
The Fly

Elon Musk seeks next Twitter CEO, Snap downgraded 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.

ANTITRUST LATEST: 

Meta Platforms (META) CEO Mark Zuckerberg testified in U.S. federal court on Tuesday about the company’s acquisition of Within, as the FTC seeks an injunction to stop the deal, The New York Times’ Sheera Frenkel and David McCabe reported. The FTC is arguing that Meta’s acquisition of Within could extinguish competition in the developing market of virtual reality before it’s even clear if that market will prosper.

The Federal Trade Commission is expanding its investigation into Twitter’s (TWTR) privacy and data security practices following the company’s takeover by Tesla (TSLA) CEO Elon Musk, Kurt Wagner and Leah Nylen of Bloomberg reported, citing people familiar with the matter. The FTC questioned two former senior executives in the past month about whether Twitter has been able to comply with the agency’s 2011 consent order since Musk took over, three people familiar with the matter told Bloomberg. The review could lead to millions of dollars in fines and a new FTC order imposing obligations on Musk himself that would apply across his companies and remain in effect even if he steps down as CEO or leaves Twitter, reports Wagner and Nylen. Musk said in an email seeking comment about the FTC investigation, “Why has Bloomberg News been asleep at the switch regarding government censorship of social media?”

The European Commission has informed Meta of its preliminary view that the company breached EU antitrust rules by distorting competition in the markets for online classified ads. The Commission takes issue with Meta tying its online classified ads service, Facebook Marketplace, to its personal social network, Facebook. The Commission is also concerned that Meta is imposing unfair trading conditions on Facebook Marketplace’s competitors for its own benefit. “The Commission preliminary finds that Meta is dominant in the market for personal social networks, which is across Europe, as well as the national markets for online display advertising on social media… If confirmed, these practices would infringe Article 102 of the Treaty on the Functioning of the European Union that prohibits the abuse of a dominant market position. The sending of a Statement of Objections does not prejudge the outcome of an investigation,” the Commission stated.

CHIEF TWIT SUCCESSOR:

Tesla CEO Elon Musk said he will resign as Twitter CEO as soon as he finds a successor. “I will resign as CEO as soon as I find someone foolish enough to take the job! After that, I will just run the software & servers teams,” Musk said in a tweet. This statement came after over 17M Twitter users voted on whether Elon Musk should step down as head of the Twitter, with nearly 58% of voters saying they want him to exit. Tesla (TSLA) shares were up about 3.5% in premarket trading on Monday.

Wedbush analyst Daniel Ives notes that in a surprise move, Elon Musk put a poll on Twitter asking if he should step down as head of Twitter and so far the results are overwhelming saying he should end his role as CEO of Twitter. Attention focused on Twitter instead of “golden child Tesla” has been another big issue for investors and likely is behind this poll results with many Musk loyalists wanting him to leave as CEO of Twitter, Ives contends. With the poll closing this morning, it appears Musk’s reign as CEO of Twitter will come to end and thus be a major positive for Tesla’s stock starting to slowly remove this albatross from the story, he adds. The analyst maintains an Outperform rating on Tesla, with a price target of $250, and ultimately views this as “a major step forward with Musk finally reading the room that has been growing frustration around this Twitter nightmare that grows worse by the day.”

SEEKING INVESTMENT: 

The managing director of Musk’s family office is looking for new equity investors for Twitter (TWTR) amid user grievances, a loss of advertisers, and looming debt payments, Semafor’s Liz Hoffman and Reed Albergotti reported, citing two people familiar with the fundraising effort. Jared Birchall, the Twitter owner’s money manager, contacted potential investors this week, offering shares of the social media company at the same price, $54.20, that Musk paid to take the company private two months ago, the authors note. “Over recent weeks we’ve received numerous inbound requests to invest in Twitter,” the outreach reads, according to a copy reviewed by Semafor. “Accordingly, we are pleased to announce a follow-on equity offering for common shares at the original price and terms, targeting a year-end close.” Tesla investor Ross Gerber confirmed he was contacted this week about a funding round, the authors say.

NOT SO SUPER: 

Meta is shutting down Super, a Cameo-like app that let people pay creators or celebrities to interact with them in a live stream, on February 15, 2023. “When we started Super in 2020, we had hoped to create a virtual meet and greet experience that came close to what you’d expect from a real-life event like VidCon or Comic-Con. What we found we’d created, however, was a much greater opportunity for creators and fans to connect in fun and exciting ways. We saw creators and fans raise funds for good causes, launch a new set of books, test drive new jokes for standup routines, and even play trivia against one another. It was amazing to see the joy and creativity in each new Super event.”

FREE SPEECH OR DOXXING?: 

Twitter on Thursday night suspended several journalists who have been covering CEO Elon Musk and the company, including the New York Times’ (NYT) Ryan Mac and CNN’s (WBD) Donie O’Sullivan, Jason Abbruzzese, Kevin Collier and Phil Helsel of NBC News reported. Musk said the “same doxxing rules apply to journalists” and that “You doxx, you get suspended. End of story. That’s it.” Musk was referring to Twitter’s latest rule change about accounts that track private jets, including one owned by Musk himself, which was put in place Wednesday.

ONE MORE TIME: 

Elon Musk sold nearly $3.6B worth of Tesla shares last week, the third sale since he declared in April there would be “no further TSLA sales” to support the Twitter deal, The Financial Times’ Dave Lee reported. The latest selloff took place between Monday and Wednesday this week and amounted to 22M shares in the electric vehicle company.

REVUE NOT RENEWED: 

Twitter’s Martijn de Kuijper blogged earlier, in part: “From January 18 it will no longer be possible to access your Revue account. On that date, Revue will shut down and all data will be deleted…This has been a hard decision because we know Revue has a passionate user base, made up of people like you… We want to remind you that it is your responsibility to adhere to any applicable laws, rules and regulations in connection with your subscriber list and other data we share with you, and Twitter, Inc. has not obtained permission for you to use subscriber information for any purpose. We’re grateful to everyone who has used our service over the years, and hope we can continue to help you build a community with your readers on Twitter.”

ANALYST COMMENTARY: 

JPMorgan analyst Doug Anmuth upgraded Meta Platforms. The shares are down 65% year-to-date as Meta has been impacted by Apple privacy changes, TikTok competition, Reels headwinds, heavy hiring and expense growth, an uncertain build-out of the metaverse, and macro pressures, Anmuth told investors in a research note. However, heading into 2023, some of these pressures will ease, and most importantly, Meta is “showing encouraging signs of increasing cost discipline,” with “more to come,” says the analyst. Meta is “building the muscle for more sustainable financial discipline” that can help drive further upward earnings revisions, and the risk/reward is attractive at current levels, contended Anmuth.

Jefferies analyst James Heaney downgraded Snap (SNAP), as he took over lead coverage of the stock. In his view, the Street is “overly optimistic” on digital advertising growth in 2023 and 2024 and he sees Snap’s lack of catalysts as a “concern.” He lowered his FY23 revenue estimates across his coverage by 3%-7%, bringing his forecasts 5%-10% below consensus, Heaney noted.

Wedbush analyst Taz Koujalgi initiated coverage of Zoom Video (ZM) with a Neutral rating. The analyst is a bit concerned about the competitive landscape as he hears anecdotes about pricing pressure in the Voice/UCaaS space, and also about competitors like Microsoft (MSFT) bundling their products with their broader portfolio. Koujalgi would also like to see some stability in the Online cohort. Further, he is worried about the 2024 revenue guide coming in below Street estimates. The stock is currently trading at 12-times 2025 EV/free cash flow, and he believes at these levels the risk/reward is balanced.

Originally Posted December 21, 2022 – #SocialStocks: Both Meta and Twitter face heightened antitrust scrutiny

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