#SocialStocks: TikTok to challenge enactment of U.S. ban

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

TIK TOK BAN ENACTED: TikTok Policy issued the following statement on the enactment of “the TikTok Ban”: “This unconstitutional law is a TikTok ban, and we will challenge it in court. We believe the facts and the law are clearly on our side, and we will ultimately prevail. The fact is, we have invested billions of dollars to keep U.S. data safe and our platform free from outside influence and manipulation. This ban would devastate seven million businesses and silence 170 million Americans. As we continue to challenge this unconstitutional ban, we will continue investing and innovating to ensure TikTok remains a space where Americans of all walks of life can safely come to share their experiences, find joy, and be inspired.”

Over the weekend, Bloomberg’s Jennifer Jacobs, Kurt Wagner and Alex Barinka reported TikTok is preparing to remove a key executive responsible for convincing the U.S. government that the company was doing enough to stave off national security concerns about its connections to China . Erich Andersen has led years-long talks with the American government meant to show that the app was doing enough to prevent China from accessing U.S. users’ data or influencing what they see on their feeds. The company is planning for Andersen to exit his current role, according to the people.

OPEN: In a post to its Quest blog, Meta Platforms (META) stated: “Today we’re taking the next step toward our vision for a more open computing platform for the metaverse. We’re opening up the operating system powering our Meta Quest devices to third-party hardware makers, giving more choice to consumers and a larger ecosystem for developers to build for. We’re working with leading global technology companies to bring this new ecosystem to life and making it even easier for developers to build apps and reach their audiences on the platform. This new hardware ecosystem will run on Meta Horizon OS, the mixed reality operating system that powers our Meta Quest headsets. We chose this name to reflect our vision of a computing platform built around people and connection-and the shared social fabric that makes this possible. Meta Horizon OS combines the core technologies powering today’s mixed reality experiences with a suite of features that put social presence at the center of the platform.”

RWS, a provider of technology-enabled language, content and intellectual property solutions, has joined forces with industry leaders to bridge the gap between rapid advances in AI innovation and policy-making through Meta’s Open Loop program. Open Loop is a global program that connects policymakers and technology companies to help develop effective and evidence-based policies around AI and specifically generative AI systems. The program, initiated and supported by Meta, in partnership with Accenture, includes a consortium of technology businesses, academics and civil society representatives.

DRUG INFLUENCERS: Influencers on social media, including Facebook, Instagram, and YouTube (GOOGL), are talking up weight loss drugs, but are not always revealing the risks of taking this type of drug, Peter Loftus and Sara O’Brien of The Wall Street Journal reported. The virtual word-of-mouth has convinced many to take the weight-loss drug, but side effects, such as painful headaches and vomiting, are often omitted or downplayed.

META AI: Meta has rolled out a compact version of Llama 3, its latest open-source artificial intelligence model, as well as a new update for its assistant Meta AI. “Built with Meta Llama 3, Meta AI is one of the world’s leading AI assistants, already on your phone, in your pocket for free,” the company said in a blog post. “And it’s starting to go global with more features. You can use Meta AI on Facebook, Instagram, WhatsApp and Messenger to get things done, learn, create and connect with the things that matter to you. We first announced Meta AI at last year’s Connect, and now, more people around the world can interact with it in more ways than ever before. We’re rolling out Meta AI in English in more than a dozen countries outside of the US. Now, people will have access to Meta AI in Australia, Canada, Ghana, Jamaica, Malawi, New Zealand, Nigeria, Pakistan, Singapore, South Africa, Uganda, Zambia and Zimbabwe – and we’re just getting started.”

EDPB WEIGHS IN: The European Data Protection Board says large online platforms like Meta should give users an option to use their services for free without targeted advertising, Reuters’ Foo Yun Chee wrote. “If controllers do opt to charge a fee for access to the ‘equivalent alternative’, they should give significant consideration to offering an additional alternative. This free alternative should be without behavioural advertising,” EDPB said after it was asked by national privacy regulators in the Netherlands, Norway and Germany to look into consent or pay models adopted by large online platforms such as Meta.

EARNINGS PREVIEW: Meta Platforms, the parent company of Facebook, Instagram, WhatsApp, Oculus, Threads and other brands, is scheduled to report first quarter 2024 results after market close on Wednesday, April 24 with a conference call scheduled for 5 pm ET.  Last quarter, Meta Platforms reported earnings of $5.33 per share on revenue of $40.11B, both of which beat consensus forecasts. Mark Zuckerberg, Meta founder and CEO, said at the time: “We had a good quarter as our community and business continue to grow. We’ve made a lot of progress on our vision for advancing AI and the metaverse.” The company said at that time that it expected first quarter revenue to be in a range of $34.5B-$37B, versus the then-current consensus of $33.83B. Current consensus EPS and revenue forecasts for Meta’s March-end quarter stand at $4.32 and $36.16B, respectively, according to data from Refinitiv. The consensus EPS and revenue forecasts for Meta’s June-end quarter reported by Refinitiv stand at $4.76 and $38.29B, respectively. Roth MKM reiterated a Buy rating and $500 price target on Meta heading into the company’s Q1 results, though it is also “marginally cautious” on the stock following a 36% year-to-date run. The FY24 quarterly revenue cadence under tougher comps, incremental growth drivers, and impact from European regulations are big unresolved debates among investors, the analyst told investors in a research note.

Additionally, the firm maintained a Neutral rating and $14 price target on Snap (SNAP) but noted that the firm has an “incremental positive bias” on the stock heading into Q1 earnings. The company’s upside Q2 EBITDA potential is driven by slowing AI/ML infrastructure spend and recent layoffs, while its North America daily active user metric should rise, the analyst tells investors in a research note. Snap’s improving brand advertising trends, likely Amazon.com (AMZN) partnership contribution, and Snapchat+ traction also offers greater confidence in the near-term revenue outlook for the company, Roth MKM added.

ADDITIONAL ANALYST COMMENTARY: KeyBanc lowered the firm’s price target on Pinterest (PINS) to $40 from $48 and backed an Overweight rating on the shares. The firm takes a slightly more cautious stance on Pinterest and Snap, reflecting its view that partnerships and AdTech rebuilds take time to ramp, and that macro adds some noise to Q2 guidance. Even so, KeyBanc maintains that Pinterest is on track for at least 17% revenue growth in 2024, which is arguably better than bears fear.

KeyBanc decreased its price target on Meta to $555 from $575 and reaffirmed an Overweight rating on the shares. The firm says it enters Q1 earnings with some caution as it does not see much thesis changing on prints and sees an upward bias to capex. KeyBanc believes Meta having a wide revenue guidance range around unrest in the Middle East could alarm investors, particularly if Q1’s outperformance moderates.

Rosenblatt upgraded Zoom Video (ZM) to Buy from Neutral with a $75 price target, citing a refocused channel strategy that has yielded partnerships like Avaya as well as “compelling” momentum in Zoom Phone. These factors, as well as a “healthy” balance sheet that supports share repurchase generated by better than 30% free cash flow margins, “collectively signal a favorable outlook for Zoom and make it an attractive opportunity,” the analyst noted.

Oppenheimer analyst Brian Schwartz initiated coverage of Sprout Social (SPT) with an Outperform rating and $76 price target. The analyst sees a pending inflection in the company’s net new customer growth. Sprout is well positioned to benefit from a pickup in the second half of 2024 marketing software spending growth and move into customer care, the analyst contended. The firm thinks Sprout Social can sustain an “upper-echelon” software-as-a-service industry growth rate and exceed $1B-plus in revenue by 2028 or sooner while increasing operating profitability.