StockTok: Reddit third quarter results spark share surge

Welcome to “StockTok,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

MALAYSIA REGULATORY MEASURES: Meta Platforms’ (META) director of public policy for Southeast Asia Rafael Frankel criticized Malaysia’s plan to require social media platforms to apply for a regulatory license by January, saying the proposal lacked clear guidelines and gave social companies little time to comply, risking digital innovation and growth in the country, Reuters’ Danial Azhar reported. The timeline to apply for a license is “exceptionally accelerated” and the obligations for social media firms under the plan remained unclear, Frankel said in an interview with Reuters. “These regulations tend to take a couple years to go through multiple iterations… to properly structure them and to balance the need for safety and ensure that you don’t inadvertently cap innovation and digital economic growth,” he said. Meta is currently undecided if it will apply for the licensing by the deadline.

SHARE REPURCHASE PROGRAM: Snap (SNAP) announced its board of directors has authorized a stock repurchase program of up to $500M of its Class A common stock. Repurchases of the Class A common stock may be made from time to time, either through open market transactions (including through Rule 10b5-1 trading plans) or through privately negotiated transactions in accordance with applicable securities laws. The timing and actual number of shares repurchased will depend on a variety of factors, including stock price, trading volume, market and economic conditions, and other general business considerations. Repurchases under the program have been authorized for 12 months but the program may be initiated, modified, suspended, or terminated at any time during such period.

RACE TO GENRATIVE AI: Elon Musk’s xAI is in talks with investors for a funding round that would value it around $40B, The Wall Street Journal’s Berber Jin and Meghan Bobrowsky wrote, citing people familiar with matter. xAI hopes to raise several billion dollars in the new funding round, one of the knowledgeable people said. The cash raised would be added to the $40B valuation. Silicon Valley’s biggest AI startups are reportedly raising cash at breakneck speed to fund the intensive computing power needed to develop and run their technology. They are competing not just with each other, but with public companies like Google (GOOGL) and Meta that are pouring profits from their existing businesses into AI, the authors noted. Musk said Monday that xAI is planning to grow the Memphis data center from 100,000 graphic processing units, or GPUs, to 200,000. Nvidia (NVDA) CEO Jensen Huang has praised the speed in which xAI built its Memphis data center, which he described in a recent podcast as “easily the fastest supercomputer on the planet.”

LAWSUITS IN BRAZIL: Brazilian consumer rights group Collective Defense Institute has filed two lawsuits against Meta, TikTok and Kwai, a short video platform from China, demanding over $525M for allegedly failing to create mechanisms to prevent indiscriminate use of these social media platforms by minors, according to initial petitions reviewed by Reuters, Ricardo Brito reported. The lawsuits call for the companies to clearly issue warnings about how platform addiction can negatively impact minors’ mental health and for the companies to lay out detailed data protection mechanisms.

ADVERTISING PACT: Zefr announced the launch of its new Brand Safety and Suitability Measurement solution for Snapchat. This new offering, developed in partnership with Snap, provides advertisers with increased transparency and control over their campaigns by leveraging Zefr’s patented AI and machine learning technology. This marks the latest expansion of Zefr’s measurement capabilities.

META SEARCH: In order to reduce its reliance on Google Search and Microsoft’s (MSFT) Bing, Meta is working on a search engine that searches the web that would provide conversational answers about current events to people using its Meta AI chatbot, The Information’s Kalley Huang reported, citing a person who has spoken with the search engine team. Google Search and Bing currently provide information about news, sports, and stocks to people using Meta AI. While Meta’s AI initiatives are “not a surprise,” the growing news flow on potential competition in Search remains “a sentiment negative” for Alphabet and Google search, BofA told investors. Still, the firm thinks Meta will be at a data and web scraping disadvantage compared to Google given the still limited number of Meta AI users, the firm added. BofA sees a possibility that a portion of internet traffic could shift away from Google Search which is currently leading the market with 90% Search share globally. The firm concluded that Google “could (and should) highlight new AI Overview capabilities” and any related search query traction to improve increasingly cautious sentiment on search share risk.

AI DEAL: Reuters (TRI) and Meta Platforms have entered a multi-year deal to allow Meta’s AI chatbot access to news content for responses to current events and news questions, Axios’ Sara Fischer noted, citing sources familiar with the agreement. “We’re always iterating and working to improve our products, and through Meta’s partnership with Reuters, Meta AI can respond to news-related questions with summaries and links to Reuters content,” a Meta spokesperson said.

SHARE SALE: In a regulatory filing, Meta chief legal officer Jennifer Newstead disclosed the sale of 905 class A common shares of the company on October 22 at a price of $574.70 per share.

EARNINGS RECAP/PREVIEW: Shares of Reddit (RDDT) skyrocket after the company surpassed third quarter expectations and issued Q4 guidance comfortably ahead of expectations. Q3 global daily active users were up 47%. “It was another strong quarter for Reddit and our communities as we achieved important milestones, including new levels of user traffic, revenue growth, and profitability,” said Steve Huffman, co-founder and CEO of Reddit. “Reddit continues to be one of the most visited and trusted sites in the world with opportunities available to us that aren’t available to most companies.” The company noted that profitability was a focus. In an interview on CNBC’s Mad Money, Steve Huffman said Reddit is growing revenue “substantially faster” than costs. Reddit is a place advertisers need to be, he noted. Currently, 50% of the company’s users are in the U.S. and 50% are outside. Huffman expects the majority of both user and revenue growth to occur outside the U.S. going forward. Shares of Reddit are currently up over 40%. Citi raised the firm’s price target on Reddit to $120 from $70 and reiterated a Buy rating on the shares. The company reported “impressive” Q3 results with revenue coming in 11% above consensus and EBITDA coming in 57% above the high-end of guidance, the analyst told investors in a research note. Underscoring the results is Reddit’s continued user growth and engagement gains with daily active users reaching 97M, up 47% year-over-year led, in part, by greater conversations on the platform as well as from its machine translation initiatives globally, said Citi. The firm believes the trends can continue going forward as newer ad units launch and incremental surfaces – like search, video, and shopping – are monetized as Reddit’s operating leverage continues.

Snap shares also jumped following a Q3 beat combined with upbeat Q4 guidance and announcement of a new share repurchase program. “I’m proud of the team’s progress this quarter, delivering strong community growth and deepening engagement while driving improved financial performance,” said Evan Spiegel, CEO. “Our investments in AI and AR are powering new creative experiences for our community and driving innovation across our advertising platform, underpinning our long-term growth opportunity.” The company expects daily active users will be approximately 451M in Q4. Evercore raised the firm’s price target on Snap to $15 from $12 and maintained an In Line rating on the shares following what the firm describes as “Modest Beat & Mixed Q3 EPS Results.” There’s a lot of product innovation going on right now, but the long-term materiality is not proven, and “Simple could actually make things complicated in terms of near- and medium-term revenue disruption,” the analyst noted. Shares were up 7% following the Q3 report.

Lastly, Meta is set to report third quarter results after the market closes. Last quarter, Meta Platforms reported earnings of $5.16 per share on revenue of $39.07B, both of which beat consensus forecasts. The company said at that time that it expected third quarter revenue to be in a range of $38.5B-$41B, and full-year 2024 total expenses to be in the range $96B-$99B. Meta added at the time that, “We anticipate our full-year 2024 capital expenditures will be in the range of $37-40 billion, updated from our prior range of $35-40 billion. While we continue to refine our plans for next year, we currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts. Absent any changes to our tax landscape, we expect our full-year 2024 tax rate to be in the mid-teens. In addition, we continue to monitor an active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results.” Current consensus EPS and revenue forecasts for Meta’s third quarter stand at $5.25 and $40.29B, respectively, according to data from Yahoo Finance. The consensus EPS and revenue forecasts for Meta’s full year 2024 stand at $21.38 and $161.92B, respectively. Evercore ISI said that based on the firm’s checks of intra-quarter data points and analysis that the firm believes Meta will “likely print a modest Beat & Bracket Q3.” The firm views the Street’s Q3 revenue estimate as “reasonable, with more upside vs. downside variance,” and views the Street’s Q4 revenue estimate as “slightly conservative based on historical seasonality,” the analyst remarked. The firm, which also expects Meta to maintain its FY24 total expense and capex guidance this quarter and does not expect Meta to provide FY25 capex and total expense guidance, held an Outperform rating and $600 price target on shares ahead of the report due on October 30.

ADDITIONAL ANALYST COMMENTARY: Piper Sandler increased its price target on Reddit to $115 from $70 and backed an Overweight rating on the shares. The firm noted Reddit delivered another quarter of strong results, with revenues 12% above its expectation, and EBITDA margins +9% better. Revenue strength was driven by the U.S., while data licensing continues to scale. Guidance was strong and Piper’s estimates rise materially post-print again.

JMP Securities lowered the firm’s price target on Snap to $16 from $17 and reassessed an Outperform rating on the shares. Snap’s Q3 results were in line, with revenue slightly above consensus and EBITDA $32M above consensus, while the high end of Q4 revenue guidance was in line with expectations, the analyst told investors. Snapchat is clearly moving cautiously with the rollout of Simple Snapchat to minimize any disruption of monetization, and the firm is increasing the possibility that the Simple Snapchat rollout is consistently delayed and that it will be less effective at driving engagement than previously believed it could be.

Bernstein increased its price target on Meta to $675 from $600 and kept an Outperform rating on the shares. Shares are up 59% year-to-date and Meta has replaced Google as the “set-it-and-forget-it” blue chip holding that offers a growing, healthy core business, an AI winner story with lower terminal risk, and a shareholder-friendly management team, the analyst contended. The setup through year-end offers a more balanced risk-reward as decent ad buyer checks, higher CPMs, and helpful FX trends are offset by weaker-than-expected ad spending from Temu and Shein, a shorter holiday shopping season, and limited guidance on key 2025 metrics, the firm said.

Bernstein cut the firm’s price target on Pinterest (PINS) to $35 from $36 and upheld a Market Perform rating on the shares. After mixed Q2 results, Pinterest also shared soft guidance for Q3 as revenue guidance of 16-18% year-over-year points to a sequential deceleration and put question marks around Pinterest’s longer-term target of growing revenue by mid to high teens over the next three to five years, the firm noted.