U.S social media ad sales have cooled since last year due to the inflationary backdrop. Moreover, with ad spending expected to slow down next year, we think the social media stocks Twitter (TWTR) and Snap (SNAP) might be avoided now. Read more….
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U.S. social media ad sales experienced a blowout last year, growing 36% to reach $58 billion. However, since then, sales have cooled as the high inflation has created an environment where brands are prone to spend less on advertising. Moreover, ad spending contracted 12.7% year-over-year in July, registering the worst monthly decline since the same month in 2020.
Ad spending for 2023 is expected to slow down significantly to just 2.6%. On top of it, Apple Inc.’s (AAPL) privacy measures on social media companies that rely on cross-site tracking are forecasted to be in the region of a $40 billion hit to their bottom lines over the course of this and the coming year.
Given this backdrop, we think it might be best to avoid the social media stocks Twitter, Inc. (TWTR) and Snap Inc. (SNAP).
Twitter, Inc. (TWTR)
TWTR operates as a popular platform for public self-expression and conversation in real-time. The company’s primary product is Twitter, a platform that allows users to consume, create, distribute, and discover content.
On July 8, TWTR announced its plan to pursue legal action to enforce the previously announced agreement for Twitter to be acquired by affiliates of Elon Musk for $54.20 per share in cash. TWTR had filed its preliminary proxy statement with the U.S. Securities and Exchange Commission to be acquired by affiliates of Elon Musk. This reflects an uncertain picture for the company ahead.
TWTR’s total cost and expenses increased 31.1% from its prior-year quarter to $1.52 billion in the second fiscal quarter that ended June 30. Its revenue declined 1.2% from the prior-year quarter to $1.18 billion. The income from operations decreased 1,236.3% from its year-ago value to a negative $343.76 million. The company’s net income per share decreased 537.5% year-over-year and amounted to a negative $0.35.
Analysts expect TWTR’s EPS estimate to decrease 25.2% year-over-year to $0.25 for the fourth fiscal quarter ending December. Its consensus revenue estimate is expected to be $1.61 billion for the same quarter.
The stock has declined 40.3% over the past year and 10.6% year-to-date to close its last trading session at $38.63.
This bleak outlook is reflected in TWTR’s POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TWTR is graded an F in Sentiment and a D in Momentum and Stability. It is ranked #44 out of the 65 stocks in the F-rated Internet industry.
In addition to the POWR Rating grades we’ve stated above, one can see TWTR’s Growth, Value, and Quality ratings here.
Snap Inc. (SNAP)
SNAP operates as a camera company internationally. The company offers Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images.
In the second quarter ended June 30, SNAP’s total cost and expenses increased 28.7% from its prior-year quarter to $1.51 billion. The adjusted EBITDA declined 93.9% from the prior-year quarter to $7.19 million. The non-GAAP net income came in at a negative $29.60 million, indicating a decrease of 120.5% from its year-ago value.
Street expects SNAP’s EPS to decline 51.8% year-over-year to $0.11 for the fourth fiscal quarter ending December. Its consensus revenue estimate is expected to be $1.34 billion for the period.
The stock has declined 85.1% over the past year to close its last trading session at $11.22. SNAP has declined 76.1% year-to-date.
The stock has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. SNAP is graded an F in Stability and a D in Growth, Momentum, Sentiment, and Quality. It is ranked #59 in the same industry.
Beyond the POWR Rating grades stated above, SNAP’s rating for Value can be seen here.
TWTR shares rose $0.80 (+2.07%) in after-hours trading Tuesday. Year-to-date, TWTR has declined -10.57%, versus a -17.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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