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Will the Disappointing FB Results Have a Ripple Effect on Other Social Media Stocks?

Shares of social media stocks took a tumble yesterday after Meta Platforms’ (FB) disappointing fourth-quarter 2021 earnings were released. While shares of FB slid 23.6%, other social media stocks, including Snap (SNAP), Pinterest (PINS), and Twitter (TWTR) saw a widespread sell-off, too. Shares of SNAP, PINS, and TWTR were down by 17.7%, 11.6%, and 8.4%, respectively, on Wednesday.

Why did Meta’s results stoke this sell-off? Mainly, because FB’s management pegged the disappointing Q4 results to rising competition from apps like Tik Tok and slower monetization from its short-form videos.

Another reason that spooked investors in social media stocks was the significant impact on social media companies from Apple’s (AAPL) iOS changes. FB’s management admitted on its Q4 earnings call that Q4 was the first quarter after Apple’s iOS changes came into effect, and this had a significant impact on its revenues. What’s more, Meta expects that this will continue to be a significant factor this year, too.

What are these iOS changes? They refer to the modification that came into effect after the launch of Apple’s (AAPL) iOS 14.5. This resulted in app developers’ inability to track a user’s Apple’s Identifier For Advertisers (IDFA) if a user opts out of sharing privacy details while downloading an app from AAPL’s app store.

This change ultimately restricted social media companies’, such as FB, ability to offer personalized advertising to its users.

But will this change also hamper other social media stocks like SNAP and PINS, which are expected to announce their earnings today? What about Twitter? Let’s take a look and try to gauge what lies ahead for social media stocks, just ahead of their earnings.

Snap (NYSE: SNAP)

Shares of SNAP have already taken a beating this year, with the stock down by 56.2% in the past year, driven by the company’s disappointing Q3 results that resulted in a revenue miss. It remains to be seen whether this downslide in the stock will be arrested after the company posts its fiscal Q4 results today.

Worryingly, SNAP’s management had admitted on its Q3 earnings call that it faced a number of challenges in Q4 including “the iOS platform changes, as well as macro uncertainty driven by supply chain disruption and labor shortages.”

The company anticipates revenues to range between $1,165 million and $1,205 million in Q4 while adjusted EBITDA is projected to range from $135 million to $175 million.

Will SNAP meet its own estimates? Monness Crespi Hardt analyst Brian White thinks that SNAP will at least meet the analyst’s estimate of revenues of $1.194 billion and his forecast of earnings of $0.12 per share in Q4.

Going by White’s revenue estimate, the analyst expects revenues to grow at only 31% year-over-year, a sharp drop from year-over-year revenue growth of 57% that it delivered in Q3.

However, the analyst does expect Daily Active Users (DAUs) to increase 20% year-over-year to 319 million, closer to SNAP’s estimate of DAUs between 316 million and 318 million.

This outlook aside, White is “unclear” about whether the disruptions that SNAP experienced in Q3 will spill over in Q4 and for how long they are likely to continue. As a result, the analyst is sidelined on the stock with a Hold rating.

Other analysts on the Street are, however, bullish on the stock with a Strong Buy consensus rating based on 15 Buys and 5 Holds. The average SNAP stock prediction of $56.37 implies upside potential of approximately 120.2% to current levels for this stock.

Pinterest (NYSE: PINS)

Along with SNAP, Pinterest is also expected to announce its Q4 results today. The company is already in troubled waters with the exit of senior executives from the company as well as the year-over-year decline in its monthly average users (MAUs) in the United States by 10%, to 89 million in Q3.

For a social media company like PINS, MAU is an important metric as it indicates the level of user engagement.

This user engagement appears to be flat for the company in the U.S. As of November 2, PINS’ MAUs in the U.S. stood at 89 million while global MAUs stood at 447 million. The company had admitted in its Q3 press release that it was in a wait-and-watch mode regarding the impact of the COVID-19 pandemic on user engagement.

That is due to the slowdown in the global MAU growth rate for PINS in the past two quarters as, according to the company, “consumer preferences shifted away from our core at-home use cases.”

Monness Crespi Hardt analyst Brian White expects that total MAU for PINS will be 448 million in Q4, a deceleration of 2% year-over-year.

But more importantly, according to White, Apple’s iOS changes are unlikely to adversely impact the company. However, the company has suffered collateral damage due to supply chain disruptions.

That’s due to its revenue momentum slowing down because falling demand for ads “in one of our largest verticals, Consumer Packaged Goods (CPG).” Supply chain disruptions have tightened the advertising budgets of advertisers, like large CPG and retail advertisers, that tend to prefer the Pinterest platform to advertise, and these customers usually have large marketing budgets.

However, in Q4, PINS is anticipating that its revenues will increase in the “high teens percentage” year-over-year.

Analyst White has projected PINS will earn revenues of $849.2 million in Q4, a rise of 20% year-over-year, well below the year-over-year growth of 37% that the company achieved in the fourth quarter of FY20.

As a result, the analyst is sidelined on the stock with a Hold rating.

Other analysts on the Street are cautiously optimistic, with a Moderate Buy consensus rating based on 7 Buys and 16 Holds. The average Pinterest stock prediction of $46.55 implies upside potential of approximately 84.1% to current levels for this stock.

Twitter (NYSE: TWTR)

Twitter has seen plenty of changes this past year, as Co-founder and former CEO Jack Dorsey resigned from Twitter to make way for his long-time friend and Chief Technology Officer of Twitter, Parag Agrawal. Agarwal is the new CEO of Twitter.

The company is expected to announce its Fiscal Q4 results on February 10. Will Twitter also feel the heat from Apple’s iOS changes in Q4?

It doesn’t appear so, as compared to its competitors, Twitter has been well insulated from supply chain disruptions and Apple’s iOS changes.

That’s because a majority of Twitter’s advertising revenues come from its direct response and brand offerings. The company is targeting having direct response (DR) offerings comprise 50% of its revenues.

What’s more, by 2023, Twitter is targeting revenues of $7.5 billion and 315 million monthly DAUs.

Will the company be successful in achieving this target? Jeffries analyst Brent Thill is skeptical and commented that “historically, TWTR’s pace of innovation has been sluggish, so investors are hoping for faster product development going forward.”

The analyst is sidelined on the stock with a Hold rating and a price target of $40 (15.6% upside) on the stock.

Rest of the analysts echo Thill and are also sidelined on the stock with a Hold consensus rating based on 5 Buys, 15 Holds, and 1 Sell. The average Twitter stock prediction of $52.70 implies upside potential of approximately 52.8% to current levels for this stock.

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