Facebook to change name to reflect metaverse focus, gets fined by CMA 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.
PINTERESTED: PayPal (PYPL) has offered $70 per share for Pinterest (PINS), mostly in stock, Greg Roumeliotis of Reuters reported, citing sources familiar with the matter. However, the final offer price and terms are reportedly subject to change. PayPal hopes to successfully negotiate and announce a deal by its quarterly report on November 8, according to a source. Pinterest shares were up as much as 15% before being paused for volatility. Truist analyst Andrew Jeffrey said the $45B deal would make "zero sense" and accentuate his existing concerns about the durability of PayPal's organic revenue growth. Such a deal would be "an act of near desperation" as PayPal contends with increased "Buy Button" competition, a "formidable" new Buy-Now-Pay-Later tie-up between Square (SQ) and Afterpay (AFTPF) and its own lagging Venmo monetization, argues Jeffrey, who thinks instead that PayPal should buy a legacy merchant processor to catalyze its Venmo and in-store ambitions. Jeffrey has a Hold rating and $275 price target on PayPal shares, which are down $15.57, or 6%, to $256.13 in afternoon trading following the Pinterest reports. On the other side, Baird analyst Colin Sebastian said that "at first glance" he believes such a potential combination could make strategic sense. For PayPal, there would be "clear synergies" in combining its own "bottom of the funnel" digital wallet and Honey deals platform with Pinterest's "top of funnel" search, discovery and inspiration platform, Sebastian said. The analyst, who thinks Pinterest "could help PayPal accelerate its super app ambitions" and significantly increase the size of its consumer wallet base by converting Pinterest users into PayPal account holders, thinks PayPal might need to pay greater than $70 per share for Pinterest. Sebastian has an Outperform rating and $325 price target on PayPal shares.
ANTITRUST LATEST: Britain's Competition and Markets Authority said Facebook (FB) has been fined GBP 50.5M for breaching an order imposed by the CMA during its investigation into Facebook's purchase of Giphy. The agency said, "It is standard practice to issue an initial enforcement order at the start of an investigation into a completed acquisition. This ensures that companies continue to compete with each other as they would have without the merger, and prevents the companies involved from integrating further while a merger investigation is ongoing. The Competition and Markets Authority imposed this type of order on Facebook in June 2020 in relation to its purchase of Giphy. Facebook is required, as part of the process, to provide the CMA with regular updates outlining its compliance with the IEO. Facebook significantly limited the scope of those updates, despite repeated warnings from the CMA. It was also criticised last year by the Competition Appeal Tribunal and Court of Appeal for its lack of cooperation with the CMA and 'what might be regarded as a high-risk strategy' in relation to not complying with the IEO and not keeping the CMA updated as the IEO required. The compliance reports are crucial to ensure that the CMA has oversight of the companies' behaviour, including whether Facebook has been taking any action which might prejudice the outcome of its investigation. This is the first time a company has been found by the CMA to have breached an IEO by consciously refusing to report all the required information. Given the multiple warnings it gave Facebook, the CMA considers that Facebook's failure to comply was deliberate. As a result, the CMA has issued a fine of GBP 50 million for this major breach, which fundamentally undermined its ability to prevent, monitor and put right any issues. Separately, the CMA has fined Facebook GBP 500,000 for changing its Chief Compliance Officer on two separate occasions without seeking consent first."
A federal judge has ordered the details of an alleged collusion between Google (GOOG) and Facebook that aimed to eliminate competition within the online ad space to be made public this week, Theo Wayt of The New York Post reported. The judges ruling, which was revealed in court documents on Friday, represents a loss for Google, which was fighting against an antitrust complaint introduced by Texas Attorney General Ken Paxton. According to the Texas suit, Google contacted Facebook back in 2017 and struck an "unlawful agreement" to give Facebook "advantages" in the ad auctions it ran in exchange for the social networking platform to back down from its competitive threats, the suit said, according to the Post. Both Google and Facebook have denied any wrongdoing.
INTO THE METAVERSE: Facebook is planning to change its company name to reflect its focus on the metaverse as soon as next week at Connect, its annual AR/VR conference, The Verge's Alex Heath reported, citing a source with direct knowledge of the matter. The rebrand would likely position the blue Facebook app as one of many products under a parent company overseeing groups like Instagram, WhatsApp, Oculus, and more. Over the weekend, Facebook said it will create 10,000 new high-skilled positions in Europe within the next five years as part of the social media giant's push to develop a metaverse - but the U.K. will miss out, Bloomberg's Ivan Levingston reported. Target markets for the hiring include the Republic of Ireland, which unlike Northern Ireland remains part of the European Union, as well as Germany, France, Italy, Spain, Poland, and the Netherlands. A spokesperson for Facebook confirmed to Bloomberg the U.K. wasn't being included. A week ago, Facebook's CEO Mark Zuckerberg and incoming chief technology officer Andrew Bosworth posted photos of themselves" with prototype VR tech amid "concepts to Facebook's work on the metaverse," wrote the Verge's Mitchell Clark. The headsets in the posted photos, while not intended to portray "actual retail products" provide a glimpse of what the social media giant is up to in its virtual reality lab, added the Verge story. "I spent the day with the Facebook Reality Labs research team in Redmond to demo our next-generation virtual reality, augmented reality and artificial intelligence tech. This one is an early retina resolution prototype. The future is going to be awesome," said the Facebook CEO, according to the Verge.
DIGITAL WALLLET PILOT: Facebook's David Marcus said via Twitter: "Remittances are a critical way to achieve financial inclusion. Today, we're rolling out a small pilot of the @novi digital wallet app in two countries - the US and Guatemala. People can send and receive money instantly, securely, and with no fees. We're doing a pilot to test core feature functions, and our operational capabilities in customer care and compliance. We're also hopeful this will demonstrate a new stablecoin use case (as a payments instrument) beyond how they are typically used today...The Novi pilot uses USDP (Pax Dollar) through partnerships with @paxos and @coinbase. USDP is a well-designed stablecoin that's been operating successfully for over three years and has important regulatory and consumer protection attributes. I do want to be clear that our support for Diem hasn't changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live. We care about interoperability and we want to do it right. Beyond the pilot, our business model is clear. We're a challenger in payments. We'll offer free person-to-person payments using Novi. Once we have a solid customer base, we'll offer cheaper merchant payments and make a profit on merchant services. Scaling Novi will take time and this pilot is a great chance for us to learn from our early customers. We want to make sure that our wallet has been fully tested before we open Novi up to more people." Remitly Global (RELY) announced a partnership with Novi (FB), a next generation digital wallet. To support its pilot launch, Novi is leveraging Remitly's custom-built global network to enable cash pickup in Guatemala. Remitly's global payments network spans over 1,700 corridors, serving customers in 17 countries, sending to over 115 receive countries. With the launch of the pilot program, Novi is enabling customers to send and receive money using the Pax Dollar stablecoin, securely and without fees. In alignment with its mission, Remitly is pleased to support Novi's initiative to open new channels of financial access and inclusion. Novi is now available to a limited number of customers in the US and Guatemala. Facebook (FB) has chosen Coinbase (COIN) as its custody partner for its pilot of Novi, a new digital wallet that enables people to send and receive money "abroad instantly, securely, and with no fees," Coinbase said in a blog post. For the pilot, Coinbase is supporting Novi via Coinbase Custody, which it says "keeps user funds secure with our proprietary, fully segregated cold storage capability for managing private keys." Novi users who can participate in the pilot can acquire Pax Dollar through their Novi account, which Novi will hold on deposit with Coinbase Custody. Novi users will then be able to transfer USDP between each other instantaneously.
BTIG analyst Mark Palmer downgraded Western Union (WU) to Neutral from Buy without a price target. The analyst's "newly cautious stance" on Western Union reflects his view that the company's money transfer platform is likely to face increasing pressure from free alternatives, such as the new digital remittance app that Facebook yesterday announced as the subject of a pilot program in the U.S. and Guatemala. The downgrade also reflects concerns about the impact on the company from the advent of blockchain-based remittance options, such as the service that Zap Solutions' Strike launched earlier this year in El Salvador offering free, instant money transfers, Palmer told investors in a research note.
TAP TO SNAP: Snap (SNAP) announced at the Pixel Fall Launch event a new feature on Google's (GOOG, GOOGL) Pixel 6 called "Quick Tap to Snap," launching later this year. "This partnership with Google marks the first time Snap has created a camera-mode version of Snapchat accessible directly from a phone lockscreen, and will make the Pixel 6 the fastest phone to make a Snap," Snap stated in a press release timed with the product launch event.
FACEBOOK SETTLEMENTS: The Department of Justice and the Department of Labor announced separate settlement agreements with Facebook regarding its use of the permanent labor certification program. The Justice Department's settlement resolves its claims that Facebook "routinely refused to recruit, consider or hire U.S. workers, a group that includes U.S. citizens, U.S. nationals, asylees, refugees and lawful permanent residents, for positions it had reserved for temporary visa holders in connection with the PERM process." Additionally, the Labor Department's settlement resolves issues it "separately identified through audit examinations of Facebook's recruitment activities related to its PERM applications filed with the Employment and Training Administration's Office of Foreign Labor Certification." Under the DOJ settlement, Facebook will pay a civil penalty of $4.75M to the United States, pay up to $9.5M to eligible victims of Facebook's alleged discrimination, and train its employees on the anti-discrimination requirements of the Immigration and Nationality Act. Under the Department of Labor settlement, Facebook will conduct additional notice and recruitment for U.S. workers and will be subject to ongoing audits to ensure its compliance with applicable regulations. “Facebook is not above the law, and must comply with our nation’s federal civil rights laws, which prohibit discriminatory recruitment and hiring practices,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “Companies cannot set aside certain positions for temporary visa holders because of their citizenship or immigration status. This settlement reflects the Civil Rights Division’s commitment to holding employers accountable and eradicating discriminatory employment practices.”
SNAP IN FOCUS AHEAD OF EARNINGS: In a research note previewing Q3 earnings for Alphabet, Facebook, Snap, Pinterest and Twitter (TWTR), Wedbush analyst Ygal Arounian said he expects the quarter to be reflective of a number of macro and micro factors quite similar to the key themes in Q2, most notably continued strength in overall digital advertising spending, what user engagement and growth looks like as the world continues to reopen and mobility increases, and commentary around the impact of iOS privacy changes going forward. Arounian believes the impact to the digital ad ecosystem from Apple's (AAPL) ATT changes should become clearer, with Facebook being the most impacted in the group. Similar to last quarter, he continues to favor Google and Snap headed into the print among his digital advertiser coverage.
BofA analyst Justin Post maintained a Neutral rating and $80 price target on Snap shares ahead of the company's earnings report on October 21. The firm's Q3 revenue estimate is $1.095B, up 61%, above management's guidance of 58%-60%, Post told investors in a research note. The analyst expects Snap to meet or beat user trends, but notes that due to tougher comps for the sector in Q4 and 1H22, near-term deceleration may be a sentiment headwind. Snap shares are down 4% to $74.13 in late morning trading.
KeyBanc analyst Justin Patterson raised the firm's price target on Snap to $90 from $88 and kept an Overweight rating on the shares ahead of the company's Q3 results on October 21. The analyst expects positive estimate revisions to persist given Snap's "unique position" as ad spend continues to increase along with cost per impression. He believes 50%-plus annual revenue growth "appears increasingly likely" for Snap. Patterson thinks Snap will guide Q4 revenue above consensus, which is currently at 47% year-over-year growth.
Lastly, Piper Sandler analyst Thomas Champion reiterated an Overweight rating on Snap with an $85 price target into the company's Q3 results on October 21. The analyst is "constructive" into the print citing "encouraging" ads data, engagement benefits from back-to-school and greater mobility, and a "generally positive" digital advertising market. Snap continues to build out new features of the platform and remains under-monetized versus peers, Champion tells investors in a research note. The analyst says Snap remains his top pick in digital advertising.