Welcome to "#SocialStocks," The Fly's weekly recap of Wall Street's reactions to social media stock news.
CLEAN BREAK: Jack Dorsey is stepping down from Twitter's (TWTR) board, effective immediately, Axios' Dan Primack reported. Dorsey stepped down as CEO of the social media company last fall. Axios notes Dorsey is friendly with Elon Musk and has discussed rolling over his 2.4% ownership stake into the deal.
META CLOUD PROVIDER: Microsoft (MSFT) announced an expansion of our ongoing collaboration with Meta Platforms (FB), saying Meta has selected Azure as a strategic cloud provider to help accelerate artificial intelligence research and development. "As part of this deeper relationship, Meta will expand its use of Azure's supercomputing power to accelerate AI research and development for its Meta AI group," Microsoft said in a blog post. In addition, Meta and Microsoft "will collaborate to scale PyTorch adoption on Azure and accelerate developers' journey from experimentation to production," it added.
OH SNAP: Shares of Snap (SNAP) tanked this week after a regulatory filing disclosed that the company is set to fall short of Q2 guidance.. The company said, "Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range. We remain excited about the long-term opportunity to grow our business. Our community continues to grow, and we continue to see strong engagement across Snapchat, and continue to see significant opportunities to grow our average revenue per user over the long term." Additionally, the company also intends to slow hiring through the end of the year as it looks to manage expenses, Speigel wrote in a note to employees.. Shares of Snap plummeted as much as 40%. Piper Sandler analyst Thomas Champion lowered the firm's price target on Snap to $30 from $50 and reiterated an Overweight rating on the shares after the company revised expectations with Q2 revenue and EBITDA trending below the prior guidance range. Snap's CEO noted a number of macro issues, says Champion, who lowered estimates following the guidance cut. The updated outlook is a negative read on digital advertising, and peers like Meta Platforms (FB) and Alphabet (GOOGL) were also under pressure after market, Champion tells investors in a research note. While Snap's near-term outlook is "certainly more negative," management "made the right move here in being transparent about the current trends in the business," he adds.
ZOOM EARNINGS: Zoom (ZM) released its Q4 results on Monday surpassing analyst expectations for earnings per share and matching expectations for revenue. The company also raised full-year EPS expectations for 2023 and provided Q2 guidance above consensus. Shares climbed 16% following the report. "In Q1, we launched Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales, demonstrating our continued focus on enhancing the customer experience and promoting hybrid work. We believe these innovative solutions will further expand our market opportunity for future growth and expansion with customers," said Zoom founder and CEO, Eric Yuan. "Additionally in Q1, we delivered revenue of over one billion dollars driven by ongoing success in Enterprise, Zoom Rooms, and Zoom Phone, which reached 3 million seats during the quarter. We also maintained strong profitability and cash flow, including 17% in GAAP operating margin, approximately 37% non-GAAP operating margin, approximately 49% operating cash flow margin, and over 46% adjusted free cash flow margin." Also, it was disclosed that Cathie Wood's ARK Investment bought 99.4K shares that same day.
Piper Sandler analyst James Fish reiterated a Neutral rating on Zoom Video with a $96 price target following Q1 results. The shares were initially much higher on the strong free cash flow upside, but most of the move has been given back as the key performance indications underneath suggest a continued deceleration and Zoom confirmed the Street's annual free cash flow estimates were 10% too high, Fish told investors in a research note. The analyst left estimates fairly unchanged following his recent downgrade that was concerned with free cash flow estimates.
On the other hand, Baird analyst William Power remains positive on the long-term platform growth opportunity and industry leading FC and he continues to view its P/E and FCF multiples as attractive. Power reiterated his Outperform rating and $140 price target on Zoom Video shares.
AIRING OF GRIEVANCES: Attorney General Karl Racine sued Facebook CEO Mark Zuckerberg for directly participating in decision-making that allowed the Cambridge Analytica data breach, the largest consumer privacy scandal in the nation's history, while Facebook misled users with claims of privacy and data protection. In the lawsuit, the Office of the Attorney General recounts evidence compiled across a sweeping investigation to allege Mr. Zuckerberg contributed to Facebook's lax oversight of user data and implementation of misleading privacy agreements. As a result, it allowed third-parties, such as political consulting firm Cambridge Analytica, to obtain personal data from 87 million Americans, including over half of District residents, and use that data to manipulate the 2016 election. "Since filing our landmark lawsuit against Facebook, my office has fought tooth and nail against the company's characteristic efforts to resist producing documents and otherwise thwart our suit. We continue to persist and have followed the evidence right to Mr. Zuckerberg," said AG Racine. "The evidence shows Mr. Zuckerberg was personally involved in Facebook's failure to protect the privacy and data of its users leading directly to the Cambridge Analytica incident. This unprecedented security breach exposed tens of millions of Americans' personal information, and Mr. Zuckerberg's policies enabled a multi-year effort to mislead users about the extent of Facebook's wrongful conduct. This lawsuit is not only warranted, but necessary, and sends a message that corporate leaders, including CEOs, will be held accountable for their actions." This action follows OAG's review of hundreds of thousands of pages of documents produced during litigation of an ongoing lawsuit filed in December 2018 against Facebook. As part of the litigation, OAG conducted a wide range of depositions with Facebook's directors, former employees, and whistleblowers, and examined hours of Mr. Zuckerberg's public statements, including sworn testimony before the U.S. Senate and other law enforcement agencies. This evidence confirmed Mr. Zuckerberg's direct oversight of major decisions that led to Cambridge Analytica's, and other third-parties', mass collection and manipulation of user data and Facebook's misrepresentation to users about the security of their personal information. In the run-up to the 2016 presidential election, Facebook, under Mr. Zuckerberg's control, allowed a third-party to launch an app claiming to be a "personality quiz" which also collected data from the app users' Facebook friends without their knowledge or consent. The app's developer then sold this data to Cambridge Analytica, which used it to help presidential campaigns target voters based on their personal traits. An investigation by OAG found that this abuse was among the many examples of Facebook's failure to adhere to its promises to protect consumers' data, violating the District's Consumer Protection Procedures Act, which prohibits unfair and deceptive trade practices. Under the CPPA, individuals are liable for a company's actions if these individuals knew about, controlled, or failed to stop, the company's actions.
TWITTER TAKEOVER: Within 24-hours, Twitters' CEO fired liked senior executives and announced a hiring freeze while Musk said he was putting "on hold" his acquisition plan, Deepa Seetharaman and Sarah Needleman of The Wall Street Journal reported. Internal conversations and other channels are distressed over Musk's recent criticisms of the company while company executives, who currently do not know what the future holds, are trying to soothe angst amongst staff members, the Journal said, citing current and former staff members and internal communications. "I expect the 'chaos tax' and ups and downs to continue," Jay Sullivan, Twitter's new head of product, wrote on May 13 in an internal message reviewed by the Journal. Twitter executives have held 15 companywide or large division-wide meetings recently to address employee questions about Musk's takeover, the hiring freeze and other company changes, a source told the Journal.
Thoma Bravo, which had been in talks with Musk about a potential joint bid for Twitter, is not readying a rival bid in case Musk's $44B takeover is terminated, The New York Post's Josh Kosman reported on Friday, citing sources close to the situation. Insiders say that the leveraged financing market for mega buyouts has seized up since Thoma Bravo expressed interest in buying Twitter and that it would be "nearly impossible" for a private equity firm to raise the junior financing needed to complete a leveraged buyout of Twitter.
SpaceX paid an employee $250,000 to settle a claim she was sexually harassed by Tesla (TSLA) CEO Elon Musk in 2016, Insider's Rich McHugh reported. The rocket launch company, of which Musk is founder and CEO, made the payment in 2018 to an unidentified flight attendant who worked as a contract employee on a SpaceX corporate jet, according to the report, citing interviews and documents. Musk took to Twitter late on Thursday to deny the "utterly untrue" claims. He added: "It was clear that their only goal was a hit price to interfere with the Twitter acquisition. The story was written before they even talked to me... The attacks against me should be viewed through a political lens - this is their standard (despicable) playbook - but nothing will deter me from fighting for a good future and your right to free speech.
Twitter executives a week ago told staff that the planned $44B deal to self itself to Musk is not "on hold" and that it is moving forward as planned, Bloomberg's Kurt Wagner and Maxwell Adler reported. Vijaya Gadde, Twitter's top lawyer and head of policy, told employees at an all-hands meeting that Twitter won't renegotiate the agreed-upon price of $54.20 per share. and that there is "no such thing as a deal being on hold." CFO Ned Segal also addressed staff, telling workers that executives are still engaged with Musk and his team, and is working with them "regularly."
While the Tesla-Twitter saga is far from over, Musk may ultimately elect or be forced to purchase Twitter going forward, Bernstein analyst Toni Sacconaghi said in a research note addressing potential funding requirements in light of the recent pullback in Tesla's stock price. At Tesla's current share price of $675, the executive should be able to finance the deal with debt, equity and a margin loan, the analyst notes. That said, following the recent drop in Tesla's stock price, Musk appears to have just enough value in his unencumbered Tesla shares to fund the margin loan portion of his proposed Twitter financing. At a Tesla share price of $621 or less, Musk would technically not be able to borrow the full $12.5B against his shares, Sacconaghi said. If the agreed upon deal price for Twitter is ultimately haircut by 10%, the executive could still borrow enough, even if Tesla shares dropped to $400, the analyst adds. Perhaps the bigger - but less probable - financial risk is that Musk completes the deal, and Tesla's share price declines materially, triggering a margin call, he contends. Sacconaghi has an Underperform rating and a price target of $450 on Tesla's shares.
MISINFORMATION: Twitter said in a blog post: "Today, we're introducing our crisis misinformation policy - a global policy that will guide our efforts to elevate credible, authoritative information, and will help to ensure viral misinformation isn't amplified or recommended by us during crises. In times of crisis, misleading information can undermine public trust and cause further harm to already vulnerable communities. Alongside our existing work to make reliable information more accessible during crisis events, this new approach will help to slow the spread by us of the most visible, misleading content, particularly that which could lead to severe harms...Tweets with content that violate the crisis misinformation policy will be placed behind a warning notice...In addition, Likes, Retweets, and Shares will be disabled."