Macroeconomic factors usually impact major social media companies in similar ways. But in Q4, the three social giants — Meta, Snap and Twitter — all outlined different narratives and mixed messaging for the future of their businesses.
Meta kicked things off Feb. 2, and it was dismal to say the least. The stock hemorrhaged 26% in the following trading session after reporting disappointing user growth, earnings and weak revenue guidance for Q1. That decline in Meta stock erased $230 billion in market value from the broader market and was the single largest drop ever by a U.S. company.
The company had a long list of reasons why, including Apple’s iOS privacy update, rising inflation and supply chain disruptions — all of which Meta said were impacting advertisers’ budgets. And given that social media companies make the bulk of their revenue from ads, this warning was extremely worrisome. Snap and Twitter stocks fell in sympathy, and many were worried they could face the same fate.
But that was hardly the case. In fact, Snap stock skyrocketed as much at 60% after the company beat Q4 estimates across the board Feb. 3 and issued better-than-expected guidance for Q1. Not to mention, it was Snap’s first profitable quarter on a net income basis since becoming a public company.
Twitter didn’t quite perform as strongly as expected, but the company also had a major shakeup in leadership during the fourth quarter. Founder and CEO Jack Dorsey announced his departure in late November and was succeeded by former Twitter CTO Parag Agrawal. Twitter missed Q4 estimates, but guidance for the first quarter came in line with the Street’s expectations, and CFO Ned Segal reiterated the company’s long-term user and revenue-growth outlook.
Meta’s Facebook saw quarterly daily active users decline for the first time ever, while Snap and Twitter both logged stable user growth. The storylines for the three companies didn’t quite match.
Peak pandemic-era growth wasn’t likely or expected, but the advertising spend backdrop remained strong. According to Magna, global ad revenue surged to an all-time high of $710 billion in 2021, with digital advertising 62% of total ad sales worldwide.
Not to mention, even as the world began its crawl toward some semblance of normalcy, social media consumption remained relatively stable in Q4, based on social app downloads data compiled by Sensor Tower. Downloads for Facebook, Instagram and Snapchat increased, while Twitter saw a small decline between October and December.
To be fair to Meta and the rest of the group, macroeconomic circumstances and the Apple privacy update are not within their control. Meta warned in Q3 that it would see meaningful impact to Q4 financials, but these companies have had a decent amount of time now to figure out ways to mitigate the blow.
Just Wednesday, Google announced its own version of privacy changes that could impact digital advertising similarly to Apple’s. It’s uncertain how well-equipped companies, including tech businesses, are to weather another round of privacy roadblocks.
Social media companies rely too heavily on ad revenue to drive overall topline growth, and investors are now learning the challenges that come with that kind of reliance. If it wasn’t clear before, it was crystal clear following Q4 results that any sort of deceleration in overall advertising spend caused by external macro issues will heavily impact Meta, Twitter and Snap stocks.
Even as the Big Three look to diversify revenue streams, the ambitions for the metaverse, AR- and VR-centric worlds are still in the very early stages. If anything, these companies are pouring cash into these newer ventures, and it will likely take a significant amount of time before there is any ROI. Investors of the social media investors may be in for a rollercoaster ride this year.
Click Here For The Original Source.