#SocialStocks: Meta Circumvents FTC Challenge and Will Acquire Within Unlimited

Twitter kicks the tires on introducing payments, Snap plunges following Q4 results, 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.

META PREVAILS AGAINST FTC: 

Meta Platforms (META) won court approval to acquire virtual reality startup Within Unlimited, defeating an attempt to block the deal by the Federal Trade Commission, Leah Nylen of Bloomberg reported, citing people familiar with the ruling. In a sealed decision early Wednesday morning, U.S. District Judge Edward Davila denied the FTC’s request for a preliminary injunction to block the proposed transaction while the agency pursues a separate case in its in-house court, according to Bloomberg. The judge separately issued a temporary restraining order pausing Meta from closing the transaction for a week while the FTC decides whether to appeal the ruling, reports Nylen.

SHARING IS NOT CARING: 

GoodRx (GDRX) has agreed to pay a $1.5M fine for sharing consumer health information with advertisers in a first-of-its-kind enforcement action from the Federal Trade Commission, Bloomberg Law’s Andrea Vittorio and Skye Witley reported. The company leveraged online consumers’ sensitive information, such as data about their prescription medications and health conditions, allowing third parties to target them with related advertisements despite its privacy promises to users, according to a complaint the FTC filed in federal court. GoodRx is said to have shared consumers’ personal health information with Meta’s Facebook and Alphabet’s (GOOGL) Google, as well as with online advertising companies Criteo (CRTO), Twilio (TWLO), and Branch.

Following an investigation of Home Depot Canada (HD) the Privacy Commissioner of Canada, Philippe Dufresne, made a statement on Home Depot’s compliance with PIPEDA. The statement said in part: “As you know, this week is Data Privacy Week, and we have released the results of our investigation into Home Depot Canada’s sharing of customer information with Meta Platforms, which operates Facebook. Our key finding, and an important reminder for all organizations, is that when a customer chooses to receive an electronic receipt instead of a printed one, they are not consenting to have their personal information shared with third parties. Since at least 2018, Home Depot had been collecting customer email addresses at store checkouts for the stated purpose of providing customers with an electronic copy of their receipt…However, my Office’s investigation following a complaint under the Personal Information Protection and Electronic Documents Act or PIPEDA revealed that Home Depot sent these email addresses, in a coded format, along with high-level details about each customer’s in-store purchases, to Meta, who would then use this information to determine if a customer had a Facebook account. If they did, Meta would compare the person’s in-store purchases to Home Depot’s advertisements sent over the platform to measure and report on the effectiveness of those ads. Meta could also use the information for its own business purposes, including user profiling and targeted advertising that was unrelated to Home Depot. While each email address that Home Depot shared with Meta was encoded so that it could not be read by individuals at Facebook, Meta employed an automated process that allowed it to match email addresses attached to individual Facebook accounts. I am pleased to share that in response to the recommendations in our report, Home Depot has discontinued this practice as of October 2022. Home Depot has also confirmed that it would obtain express and meaningful opt-in consent should it put in place a similar practice in the future .”

REEL MONEY: 

During the company’s upcoming earnings call, Wall Street analysts will likely ask Meta Platforms CEO Mark Zuckerberg on what the latest is on content creators making money from Reels, Meta’s answer to TikTok, Sylvia O’Regan and Kaya Yurieff of The Information reported. After three years of working on reels, it is finally beginning to pull meaningful numbers of viewers, but making money is a difficult issues, company executives said, according to the Information. Instagram Chief Adam Mosseri is concerned about rolling out too many ads on reels, which may worsen user experience and hurt engagement, four people familiar with the matter said. Furthermore, another issue is Meta has long been resistant to splitting revenue generated in Facebook and Instagram feeds. Reels is “finally beginning to pull in meaningful numbers of viewers” after three years of work, but making money from Reels is “a more complex issue” and whether to relax long-standing opposition to the sharing of ad revenue with creators is an “even bigger debate bubbling inside Meta,” according to O’Regan and Kaya Yurieff, citing sources. Meta executives have long been resistant to splitting revenue with creators and former COO Sheryl Sandberg was “among the powerful opponents of the idea,” according to the report. YouTube, a unit of Google (GOOGL), has long shared revenue with people who upload videos onto the streaming service, the report pointed out.

MEMBERS ONLY: 

Meta blogged earlier, in part on it’s Oculus Blog: “We expanded the availability of personal space in Meta Horizon Worlds, giving more people access to the first closed experience within Worlds and the additional freedom and control that comes along with it. … we’re opening up a new type of closed space-members-only worlds-and kicking off a limited alpha test to give creators that same level of autonomy to grow and moderate their own communities. Just like personal space gives people a place to call their own, members-only worlds let creators build and cultivate a space where a community of people can come together to enjoy a curated experience… They’ll be able to grant exclusive access to VIP supporters, create a dedicated space to showcase their world design portfolio to the creator community, host a book club, gather a gaming group, organize a support group, or just hang out with friends and family-all without worrying about uninvited guests. With full control over who has access to visit their worlds, creators can consistently offer a positive experience where people can build connections and foster a strong, thriving community. Our goal is to put design in the creators’ hands so that they can fully craft the experience they want to offer others…Our vision for members-only worlds is to empower creators to craft the culture of their communities…”

NOTED: 

Adam Mosseri, head of Meta’s Instagram, said the platform’s Notes feature is now available in Europe and Japan. The feature, which allows users to submit short posts of up to 60 characters that just include text and emojis, initially rolled out in December outside of Europe and Japan.

PAYMENT: 

Twitter (TWTR) has started applying for U.S. state licenses and designing the software required to introduce payments across the social media platform, The Financial Times’ Hannah Murphy reported. CEO Elon Musk, also the CEO of Tesla, previously said he wants Twitter to offer fintech services such as peer-to-peer transactions, savings accounts and debit cards, as part of a master plan to launch an “everything app” that incorporates messaging, payments and commerce, and Esther Crawford, a fast rising lieutenant to Musk, is working on devising a vault for storing and protecting the user data that would be collected by the system, according to two people with knowledge of the team’s efforts.

A PATH PAST PRIVACY CHANGES: 

Following the toughest year in its history, Meta Platforms is starting to see a path to recovery, Jeff Horwitz and Salvador Rodriguez of Wall Street Journal reported, citing internal documents and interviews with people familiar with the matter. Investment in artificial intelligence tools has enabled the company to improve ad-targeting systems to make better predictions based on less data, the interviews and documents show, according to the Journal. That, along with shifting to forms of advertising less dependent on harvesting user data from off its platforms, are key to Meta’s plans to overcome Apple’s (AAPL) privacy change that restricted its capacity to gather information about what its users do on outside platforms, the journalists report.

INVESTING IN CONTENT: 

Meta is paying BuzzFeed (BZFD) to generate creator content for Facebook and Instagram and to train online creators to grow as part of a roughly $10M deal reached in 2022, The Wall Street Journal’s Jessica Toonkel and Alexandra Bruell reported, citing people familiar with the situation. BofA analyst Brent Navon said “this does not appear to be a new deal.” The contract terms the press reported as “valued at close to $10 million” likely represents the entire relationship versus incremental business, said the firm, which continues to view BuzzFeed as a “show me” story at this stage and maintains the same on the shares.

GUESS WHO”S BACK: 

Meta said in a blog post that it will be ending the suspension of former U.S. President Donald Trump’s Facebook and Instagram accounts in the coming weeks following a two-year ban. The company said it has put new guardrails in place to deter “repeat offenses.” “The public should be able to hear what politicians are saying so they can make informed choices,” the company said. Meta first suspended Trump’s accounts on January 7, 2021, the day after the attack on the Capitol building on January 6, 2021.

SNAP QUESTIONED: 

The Federal Bureau of Investigation and attorneys with the US Justice Department are considering Snapchat’s (SNAP) “role” in fentanyl-laced pills in the US “as part of a broader probe into the deadly counterfeit drugs crisis,” wrote Olivia Carville, Jason Leopold and Maria Curi wrote for Bloomberg. “On Wednesday, the involvement of technology companies in the ongoing fentanyl crisis will be discussed on Capitol Hill at a House Energy and Commerce Committee roundtable,” noted the Bloomberg story.

EARNINGS PREVIEW/RECAP: 

Meta is set to report Q4 earnings after the bell today. A year ago, the company noted that it expects Q4 revenue of $30B-$32.5B with an analyst consensus of $32.31B. Pre-earnings options volume in Meta Platforms (Facebook) is normal with calls leading puts 3:2. Implied volatility suggests the market is anticipating a move near 8.9%, or $13.19, after results are released. Median move over the past eight quarters is 6.3%.

Snap, on the other hand, reported its fourth quarter results yesterday. While Q4 daily active users, or DAUs, were up 17% to 375M, shares fell 14% as the company failed to provide guidance citing environmental uncertainty. Piper Sandler analyst Thomas Champion backed a Neutral rating on Snap after its Q4 results. The company’s revenue was in-line and its EBITDA was 13% above consensus, but the management’s internal targets for Q1 suggest a further decline in advertiser demand, with revenue falling 7% quarter-to-date, the analyst tells investors in a research note. The firm adds that Snap’s cost cuts were the right move, but also views the business “remaining challenged”.

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Originally Posted February 2, 2023 – #SocialStocks: Meta circumvents FTC challenge and will acquire Within Unlimited