This year so far has been miserable for investors in social media companies.
Shares of Meta Platforms (FB) that owns Facebook and Instagram are down more than 40% so far in 2022. Investors are concerned about CEO Mark Zuckerberg’s plans to turn the company into a Metaverse player…whatever that means. The ticker symbol changes from FB to META on Thursday.
Zuckerberg will also have to navigate that transition without his trusted assistant Sheryl Sandberg, who will step down as COO later this year.
Snapchat (SNAP) is swaying after a shocking earnings warning a few weeks ago. The stock is down nearly 70% this year. Pinterest (PINS) has lost nearly half its value. Even Alphabet (GOOGL) that owns YouTube and Google faltered. The stock is down about 20%.
Then there is Twitter (TWTR). Despite the fact that Tesla (TSLA) CEO Elon Musk has offered to buy the company for $44 billion, Twitter (TWTR) stock is still down 11% this year and trading more than 30% below Musk’s offer price of $54.20 per share. Wall Street is now skeptical that the deal will actually take place at the original price – if at all.
Investors seem to have finally come to the realization that social media stocks are basically just media stocks.
This means that despite their high growth rates, social media companies are still subject to volatile shifts in advertising budgets and user behavior, just as traditional media companies such as television networks and newspapers are. Labeling social media platforms as tech stocks might be a misnomer.
Social media companies are facing other challenges that are also hurting their stock prices this year. The Global X Social Media ETF (SOCL), which owns a basket of social media stocks from around the world, is down more than 30%.
Changes to Apple’s Privacy Tracking (AAPL) features in its iOS have wreaked havoc on the entire social media industry.
Meta warned in February that its revenue could be hit $10 billion, and Zuckerberg said during the company’s first-quarter earnings call with analysts in late April that the iOS changes represented a “meaningful headwind” for Meta and its competitors.
Competition is also a problem. Social media companies live and die by their user growth metrics. Privately owned TikTok is now enjoying all the momentum, especially with the younger Millennial and Gen Z subscribers that advertisers crave.
One of the reasons for YouTube ad revenue growth “has been a little disappointing,” Morningstar analyst Ali Maghribi said in a report after Alphabet’s first-quarter earnings in late April, in part due to “increased competition from Meta, Snap, Twitter and Pinterest, as well as entrants”. Neo. Like TikTok.”
Big brands are also increasingly embracing TikTok, which could hurt other social media companies.
“We continue to focus on social platforms that are relevant to the younger Generation Z consumer,” Stefan Larsson, CEO of Calvin Klein and owner of Tommy Hilfiger PVH (PVH), said on the latest earnings call. Larson noted that challenging the hashtag #onlyinmycalvins on TikTok has generated “a huge viewership” across 10 countries.
Fabrizio Frida, CEO of cosmetics giant Estee Lauder (EL), also noted in its latest earnings call that a new brand of mascara called MACStack aimed specifically at Generation Z and Millennial consumers “has popped up on TikTok.”
Frida said the company quickly collected more than 153 million product views on the video-sharing platform and that sales “exceeded our expectations this quarter.”
Madison Avenue advertising agencies have taken notice, too.
“TikTok is clearly showing up and making a really big impact,” Philip Krakowski, CEO of Interpublic (IPG), the marketing company that owns McCann’s advertising agency, said on its last earnings call in April.
In other words, if the popular 2022 TV show “Mad Men” were to be reproduced, modern-day Don Drapers would probably work primarily on viral TikTok campaigns for their clients. This is not good news for Meta, Snapchat, and Twitter.