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Big tech earnings show consumers are 'shifting to digital': Analyst

Big tech companies Apple, Amazon, Facebook, Alphabet, and Twitter reported earnings. JMP Securities Technology Analyst Ron Josey joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Ron Josey, he is GMP Managing Director. It's good to have you here. There's a lot to talk about here. So guide us, as investors love tech, and we know they have an outsized influence on the different indexes, what do you take from what we've just looked at with these earnings reports?

RON JOSEY: Thanks, Adam, good to be here. And you're exactly right, it's a lot of data. We're trying to understand and go through all of it. I would just say from a broader thematic perspective, the trends that we're seeing on a mixshift from offline to online have not stopped. In fact, I think that just continues to accelerate.

And you're seeing it not only on engagement. I think we heard Julie talk about Facebook engagement down sequentially in North America is maybe a reason for what's happening on Facebook shares today. But frankly, we have to remember that results or at least engagement was higher in 2Q because of the pandemic. Lockdowns are now less so. We'll see what happens, of course, going forward. But that's happening. But engagement still remains at these elevated levels. So that's point number one thematically.

Point number two is from an advertising perspective, if engagement remains high at these large platforms, we're seeing advertising accelerate across the board. You mentioned Facebook, Google, Twitter. I'll throw Snap in there as well, and others that talked about basically 3Q ending at a rate that's similar to growth that it was in 4Q and 1Q, so more normalized levels. And so you're having accelerating growth in advertising.

And then you have e-commerce on top of that. That's Amazon's results speak for themselves. Profitability was a miss, but we can get into that. So what do I think about all this stuff? I think the pandemic is certainly mixshift, everything is mixshifting to digital. I don't think those trends are changing anytime soon. And the moves we're seeing today in my view, are largely temporary.

JULIE HYMAN: Hey, Ron, it's Julie here. I do want to dig into Facebook in particular a little bit more, because something I have been trying to sort of figure out is a discrepancy in between a couple of companies that we heard from. Pinterest came out and said, well, we got a bump up in advertising spend with some advertisers migrating away from Facebook because of that boycott and coming to Pinterest. Yet, that didn't seem to be seen in those Facebook numbers. So what do you think is going on here? Is it that advertisers are hedging their bets and spending in both places?

RON JOSEY: Yeah, I think it's just the size and scale of these platforms. I think it's really important to remember that Facebook now has 10 million advertisers. And what is driving that growth is largely the SMBs who can go on and advertise on their own, place her own ad spend and see a result. And whether it's good or bad, continue or not continue. But that self-serve function on Facebook and the targeting and just the reach and scale is second to none.

And what's even more fascinating, I think Facebook in the first three weeks of July, talked about advertising growth of 10%. And we know that was the middle of the boycott. They ended up growing for the quarter on advertising around 22% or so on an XFS basis, 21%, 22%, which implies that August and September saw accelerating growth and a stronger ad environment.

We saw the same thing at Snap. We saw the same thing at Twitter. We saw the same thing at Google I believe. So while yes, you're right, the boycott certainly impacted some results at Facebook in the short term, just the size and scale of advertisers on Facebook's network is what's going to, call it, cushion the blow of any of that stuff. And just to be clear, large advertisers are a very small part of Facebook's overall business, and that's the power of this platform and why we remain so bullish on the company.

AKIKO FUJITA: Ron, let's talk about what happened with Twitter here. I mean, that stock is down nearly 20% right now, and you're looking at the mDAUs, just one million in terms of growth for the quarter. What do you think happened there? And how big of a concern is this for Twitter long term?

RON JOSEY: Yeah, look, across the internet sector, the number one thing that we focus on is engagement and usage. With that comes advertisers. With that comes just content creation and everything else. And so Twitter historically the past few years, have been accelerate, past few quarters, have been accelerating their mDAUs and 2Q saw a pretty big, pretty big bump there. One, 3Q grew about a million or so. That's certainly below where people were expecting.

They are improving their platform by trying to make notifications and making it more user-friendly. Until they can get more users on the platform and using it more often, usage is going to continue to be a question mark. That said, it was actually encouraging to see advertising grow 15% in the quarter. However, at the end of the day, it's all about users, and that's what we care about the most for all of these companies.

DAN ROBERTS: Ron, Dan Roberts here. Just on the Twitter user miss, which I think, a side note, we were discussing this yesterday as soon as the numbers came out, it's been remarkable to me, Twitter's inability to grow its user base enough. I mean, we're all journalists. We use and like the product. I'm just still stunned over the years how little the user base has grown. I know it has grown, but I would have thought more. And the real question I think is leadership. What do you make of Jack Dorsey's prospects now? He has, for a few years, been CEO of two publicly traded companies, Twitter and Square, and arguably, one has done better than the other in the last few years. What happens next for Jack Dorsey at Twitter?

RON JOSEY: Yeah, so Dan, I think you're exactly right. The opportunity, we just talked about Facebook adding 196 or so million DA users in the US and Canada this quarter. Twitter is around 36 million in the US. So it's clearly a large market. And we've been talking about the product for a while, the company has as well.

And so it's encouraging to hear about notifications. It's encouraging to hear about what they're doing, adding new hashtags and dollar signs and what not to improve, but that takes time. Either way, I don't think there's any doubt that Twitter is ingrained in our society. The point is, can they make it easier and better for consumers to use and use it more often? And that is something that we're looking for every quarter, every day. And I think it's not as easy as it seems.

In terms of where Jack is going, look, I would argue that the stock's been doing pretty good, advertising results are coming back. Barring this past quarter, the past few quarters, we have seen mDAU growth and sort of a mix, more products coming out to drive usage. And so I actually think we're seeing pretty effective leadership here at Twitter, although that's something that's always going to come up and be a question mark.