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How Are Social Media Companies Doing This Quarter?

Sejuti Banerjea

Social media stocks did well this quarter with both Facebook FB and Twitter TWTR reporting very strong numbers. Snap SNAP disappointed slightly mainly because DAUs, but management’s monetization initiatives were encouraging. Read on-

Snap’s problems are two-fold: one is to do with innovation and the fact that Facebook seems to steal its thunder by copying everything it does and then scaling it up more efficiently.

On this front, the company has revamped its Android app to make it 25% smaller, to open 20% faster on average, and in a modular design for more efficient updating. It’s also introduced Snap Games, AR features, Snap Kit enhancements for developers and new original shows on Discover. These features have helped drive engagement and average revenue per user (ARPU)) on the platform, which saw accelerated growth of 38.8% in the quarter compared to 36%+ growth in the previous quarter.

The other problem is to do with daily active users (DAUs). Here Snap continues to disappoint, with the 190 million at the end of the quarter short of the 191 million in the year-ago quarter (a record high for the company).

So it’s doing the right things as far as monetization is concerned, as evident from the revenue growth number. But you can expect expenses to remain high as it goes all out to increase the DAU and keep up with its innovations (that will likely get stolen along the way).  

Numbers-

Reported loss per share of -$0.23 was greater than the Zacks Consensus Estimate of -$0.21.

Reported revenue of $320 million surpassed the Zacks Consensus Estimate of $306 million.

The Zacks Consensus Estimate for 2019 is down about 7.0% in the last 7 days.

The shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Twitter reported a huge earnings beat, partially on account of expenses that got moved to later in the year on revenue that also grew very strongly.

The company is moving away from reporting monthly active users and focusing instead on monetizable daily active users as a gauge of its performance. These mDAUs grew by 8 million in the quarter (up 14 million year over year, of which 11 million was international) to 134 million, the biggest jump in 4 years.

Both U.S. and international ad revenue grew double-digits. U.S. revenue growth (26%) was higher than international (10%) driven by strength in video ads.

Primary focus areas for the company are first, the organization of comments and reactions around events that make them something to follow, just as you can with individuals. The second is the explore feature that again helps the company identify a user’s interests and therefore drive more such content to them. The third is the focus on improving the ad platform since advertising remains the most important revenue source.

Twitter CEO Jack Dorsey said that he’s gotten proactive with removing abusive content that doesn’t promote “healthy” conversation (another way of justifying the censorship of the Internet). He says that AI determines 38% of the removal cases, we’ll have to see how users react to this.

Numbers-

EPS of $0.15 was higher than the Zacks Consensus Estimate of $0.06.

Reported revenue of $787 million was higher than the Zacks Consensus Estimate of $775 million.

The Zacks Consensus Estimate for 2019 is up 19.8% in the last 7 days.

The shares carry a Zacks Rank #2 (Buy).

 

Facebook is different from the other two in that it is the dominant social media platform doing everything that they do and more. So there is far greater depth in its monetization, with initiatives testing business communication and ecommerce, and payments, on top of the core advertising model. In advertising too, it isn’t just selling the newsfeed (“town square” in Zuckerberg’s words) but also Watch (a video sharing platform) and stories (what Zuckerberg calls the “living room,” something the company stole very effectively from Snap).

Being the largest, it has the slowest growth in DAUs, but 2% growth is decent considering that it comes off a 2 billion-user base.

More significantly, revenue growth of 26% is testimony to the fact that Facebook does a much better job of monetizing DAUs, again because of the sticky user base that advertisers can’t seem to pay enough for.

The biggest and perhaps only problem for Facebook is the growing regulatory concern regarding the way it captures and shares user data and even lets that data get stolen or exposed to hackers. Users don’t seem to mind, much. But regulators are taking notice.

Zuckerberg is making all the right sounds about regulation and privacy, but will probably have to dish out $5 billion to the FTC and perhaps more to the states and the EU over time. He has also pushed up the headcount to take a more proactive role in fake news discovery and removal, which will continue to impact margins. But he’s nowhere near control because of the huge user base. So this will take time.

Numbers-

EPS of $0.85 was much lower than the Zacks Consensus Estimate of $1.66 mainly because of the $3 billion provision for expected settlement charges with the FTC.

Reported revenue of $15.08 billion was higher than the Zacks Consensus Estimate of $14.97 billion.

The Zacks Consensus Estimate for 2019 is down 4.2% in the last 7 days.

The shares carry a Zacks Rank #2 (Buy).

 

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