#SocialStocks: Snap shares surge following leaked FY24 expectations

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

TAKING A BACK SEAT: Meta Platform’s (META) Instagram head Adam Mosseri said Threads blocking health-related search terms like “Covid” and “vaccines” is temporary and will be lifted in “weeks or months,” TechCrunch’s Sarah Perez reported. He cited the current situation in Gaza as the more pressing focus right now in terms of managing content, and detailed other projects that Instagram has prioritized before unblocking Covid-related terms. “The biggest safety focus right now is managing content responsibly given the war in Israel in Gaza. The broader team is working on deeper integrations into Instagram and Facebook, graph building, EU compliance, Fediverse support, trending, and generally making sure Threads continues to grow,” he added.

DAUS: Snap (SNAP) shares surged amid media reports on Monday that CEO Evan Speigel said, the company expects to add more daily active users or DAUs in 2024, than expected, Reuters said. Snap now expects to have more than 475M daily active users or DAUs in 2024, according to the report.

INTEGRATION: illumin (ILLM) introduced new functionality for its journey advertising platform by establishing a fully integrated connection with Meta to provide new Facebook and Instagram capabilities allowing end-to-end Social Advertising. With this latest product update, illumin expands connected journeys with its first social capabilities. The new feature brings Facebook and Instagram advertisements directly onto the journey advertising platform. “This integration makes illumin’s platform a true one-stop shop by letting advertisers manage their Open Web and Social campaigns from a singular, connected interface,” said Rachel Kapcan, Chief Product Officer at illumin. “This social integration is the first step of many in creating a platform made for how marketers always wished they could work – and further solidifies illumin as the number one journey advertising provider.”

PIPE DREAM: Digital World Acquisition (DWAC), the special purpose acquisition company, or SPAC, that plans to merge with Trump Media & Technology Group, said it would return to investors $533M raised for the deal after some already backtracked on $467M of commitments, reported Reuters’ Helen Coster. Digital World raised $1B in a private investment in public equity, or PIPE, transaction last year, but failed to complete the merger with TMTG by a September 2022 deadline, the report noted. TMTG CEO Devin Nunes said in a press release that terminating the PIPE was “in the best interest of TMTG’s equity holders and completing our merger with DWAC as soon as possible.” A TMTG spokesperson said in a statement to Reuters that the PIPE’s termination was “a key step toward completing our merger,” but did not respond to a question on why terminating the PIPE ahead of the merger was positive for TMTG.

SHARE SALE: In a regulatory filing, Pinterest (PINS) director Jeffrey Jordan disclosed the sale of 17,500 class A common shares of the company on October 11 at a price of $28.6344 per share.

TRACKING DISINFORMATION: European regulator Thierry Breton sent a letter to Meta CEO Mark Zuckerberg on Wednesday urging the executive to be “vigilant” about removing disinformation, CNBC’s Ashley Capoot wrote. Breton said the EU has been seeing an increase in illegal content and disinformation on “certain platforms” following the Hamas attack on Israel. Meta is responsible for monitoring misinformation and illegal content under the EU’s Digital Services Act, and Breton asked Zuckerberg to respond within 24 hours.

ANALYST COMMENTARY: Oppenheimer is cautious on Snap shares ahead of the October 21 earnings report following the 12% rally after a leaked internal memo indicating a 2024 revenue target of up 20% year-over-year. A similar memo was leaked last year with even loftier expectations that initially sent shares up 10% before Snap’s Q4 of 2022 revenue and EBITDA guidance was 6% and 26% below Street estimates, respectively, sending shares down 32% the following day, the analyst told investors in a research note. The firm remains skeptical of the company’s ability to reaccelerate revenue in a material way, due to engagement and impression headwinds, the competitive landscape and advertisers “continuing to de-prioritize” Snap. It keeps a Perform rating on the shares with no price target.

Jefferies initiated coverage of Pinterest with a Hold rating and $30 price target. The analyst cited the stock’s premium valuation for the Hold rating. In addition, Pinterest could “struggle” with diversifying its advertiser base and sustainably growing engagement, the analyst tells investors in a research note. The firm says the company has structurally lower usage than video platforms, “making it harder for advertisers to scale.”

Roth MKM kept a Neutral rating with $10 price target on Snap ahead of the company’s Q3 results next week. The company’s recent and unexpected executive departure and AR division layoffs more than offset forward progress such as Microsoft (MSFT) ads partnership and Snapchat+ subscription traction, the analyst told investors in a research note.

Mizuho is positive on Meta Platforms into the earnings print, saying agency checks indicate the company’s advertising revenue growth is tracking ahead of consensus. The firm also expects further operating leverage from Meta’s increased efficiency. With an estimated exit rate of 20%-plus revenue growth, the consensus fiscal 2024 growth of 13% is conservative with positive leading indicators from improved pricing. Mizuho said that while investors are concerned Meta’s 2024 opex guidance could be elevated at 20% year-over-year growth, it believes the probability is low given the narrow product roadmap of metaverse and headcount not likely to accelerate meaningfully. The firm likes the stock’s risk/reward heading into the print and keeps a Buy rating on Meta with a $400 price target.

RBC Capital reiterated an Outperform rating and $95 price target on Zoom Video after hosting in-person investor meetings with CFO Kelly Steckelberg and Head of IR Tom McCallum, with key topics for discussion being the monetization strategy for AI, the vision for contact center, and platform expansion. There remains a compelling long-term GenAI value add for Zoom, especially given the volume of unstructured data, but while the firm is optimistic on reaccelerating growth with solid margins, it is also acknowledging a lack of near-term catalysts and a challenging outlook could keep investors sidelined for a few quarters, the analyst tells investors in a research note. RBC adds however that at enterprise value 9-times the expected 2024 free cash flows, Zoom Video shares offer “favorable risk-reward”.