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Social Media in Trouble
As we discuss in our main story, Facebook saw lower advertiser spend as supply shortages and inflation crimped marketing budgets. But this shouldn’t come as a surprise. Last quarter, Snap (SNAP) already highlighted this problem. And it makes all the sense in the world. If you sell any good or service and can’t keep up with demand, why would you stoke it further by advertising? Yes, there are reasons like brand recognition. But that’s not really applicable for small and medium enterprises. We expect this problem to permeate all social media advertising companies. Yet, it begs the question as to why Google (GOOGL) wasn’t affected. Apple’s privacy changes have a more direct impact on Facebook than they do Google searches. Facebook is losing insight into its users while Google isn’t. That’s the long and short of it. And it’s why we were optimistic for Google even after its recent run yet cautious on social media companies in the near-term. But make no mistake, they will come back as supply chain congestion is resolved. |
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Facebook Faces Meta-Sized Problems |
Key Takeaways
Meta (FB) reported earnings and let’s just say the market wasn’t thrilled. Shares opened down more than 25% below Wednesday’s close. Here’s why. Users Growth Stalls In one of the most disappointing quarters, Facebook’s Daily Active Users (DAUs) dropped for the first time quarter over quarter ever! Total monthly users landed at 2.91 billion for Q4, flat compared to the prior period. The ratio of the two remained relatively flat at 66%, the one bright spot. Hit From All Sides Outside of internal user growth, the company faced headwinds from all over:
The company is transitioning more towards the Reels short-form video platform. While it’s gaining traction, the company is losing money on the old format while Reels still isn’t as heavily monetized.
The Bottom Line: Near-term, Facebook could see shares trade even lower as its main profit center sees lower ad spend. However, that will ease as global supply constraints do. Regardless of how bad this quarter appears, the company still grew revenues 37% YOY and sent EPS up 36%. |
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