#SocialStocks: Instagram cuts jobs amid Meta pivot to AI focus

Welcome to “#SocialStocks,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

TERMINATED: Shares of Digital World Acquisition (DWAC) are moving lower after the company disclosed this morning that its securities purchase agreements with certain institutional investors has been terminated. The PIPE investors had agreed to purchase up to an aggregate of 1M shares of Digital World’s series A convertible preferred stock at a purchase price of $1M0 per share, for an aggregate commitment of up to $1B in a private placement to be consummated concurrently with the business combination with Trump Media & Technology Group. The remaining PIPE Investors were not willing to waive the effective registration closing condition, so on January 10, the agreement was terminated in full resulting in the cancellation of the remaining subscription amount of $530.5M, the company said. Shares of Digital World Acquisition were down 9% to $20.39 in premarket trading.

MORE EFFICEINCY: Meta Platform’s (META) Instagram is cutting 60 technical program managers this week, a move seen as being in line with CEO Mark Zuckerberg’s “efficiency” drive, The Information’s Sylvia Varnham O’Regan reported. The laid off staffers will have two months to try to find another job at the company, the author said. As part of an overall Instagram shakeup, the company is forming three new focus areas within its “Sharing” product group, which is centered on helping people create and share content on the platform, the author noted.

CHANGE OF FOCUS: Sources describe how AI replaced the metaverse as Mark Zuckerberg’s top priority, leading Meta to ruthlessly cut jobs and focus on quickly releasing AI products, Bloomberg’s Aisha Counts and Sarah Frier wrote.

ZOOM PRESENTATION: Zoom Video (ZM) provided insight into its operations at the 26th Annual Needham Growth Conference last week. The company expects more discussions into FY25 about customers ‘getting right sized’. Zoom said artificial intelligence is one of its top priorities, but that number one is accelerating growth in the business. Zoom Video CFO Kelly Steckelberg stated during the presentation: “Now, we had indicated that we do — when we look forward, I’m not giving guidance today. But just as a reminder, going forwards, we are investing very heavily in AI, both in terms of compute capacity as well as headcount. And that is potentially going to have some impact on our gross margins.”

ANALYST COMMENTARY: OTR Global upgraded its view on Snap (SNAP) to Positive from Mixed, citing checks that pointed to improving fundamental trends.

Evercore ISI has added Meta Platforms (META) to the firm’s the “Tactical Outperform” list in advance of Q4 results. The firm keeps an Outperform rating and $425 price target on the shares.

Piper Sandler raised the firm’s price target on Snap to $17 from $12 and maintained a Neutral rating on the shares. The firm says its top trade idea into earnings as PSC CPM data is positive. Piper’s Q4 revenue forecast climbs to $1.43B relative to consensus $1.37B. The stock has been up since Q3, but short interest is also high. This could be a powder keg, but the firm’s checks acknowledge an improvement in sentiment from prior.

Additionally, Piper Sandler raised the firm’s price target on Meta to $415 from $355 and reiterated an Overweight rating on the shares. The firm says Street revenue and EBITDA can probably move higher through 2024, and with Piper also expecting a slight guide-down to FY24 capex and opex. The firm’s checks were again positive, especially Advantage+. Further, Piper expects Q1 guidance to bracket $33.5B-$36.0B.

Truist kept a Buy rating on Meta Platforms and Alphabet (GOOGL) with unchanged respective price targets of $405 and $160. In a sector note, the analyst contended that the companies’ Q4 results will likely show solid growth in digital ad spending across search and social, noting that growth in the quarter was likely helped by an ongoing recovery in pricing. Conversations with digital ad agencies suggest that demand has been relatively consistent sequentially across Search and Social, helped by Brand spend and e-commerce, while retail media has maintained its strong momentum, the firm tells investors in a research note.

Piper Sandler raised the firm’s price target on Zoom Video to $72 from $69 and backed a Neutral rating on the shares. While artificial intelligence is a major tailwind for technology, broad IT spending will remain cautious early in the year but potentially open-up in the second half of 2024, the analyst tells investors in a research note. The firm rolled forward communication software valuations to 2025.

Barclays raised the firm’s price target on Sprout Social (SPT) to $75 from $65 and reaffirmed an Overweight rating on the shares. After a strong 2023, software “needs to deliver” in 2024 on the promise of artificial intelligence and recovery, the analyst tells investors in a research note. The firm thinks the larger players are better positioned to do so. After a strong year for the shares in 2023 Barclays is downgrading Elastic (ESTC) and Snowflake (SNOW). The firm said seat-based models will continue to struggle, causing its downgrades of Zoominfo Technologies (ZI) and Jamf Holding (JAMF) to Equal Weight and Walkme (WKME) to Underweight.