This story originally appeared on Best Stocks
Table of Contents
Snap loses market due to Apple privacy changes
The social media company’s stock dropped more than 20% in after-hours trading after blaming Apple’s changes for missing revenue targets.
“Changes to iOS ad tracking that were broadly rolled out by Apple in June and July disrupted our advertising business,” Snap CEO Evan Spiegel said in prepared remarks. “While we expected some business disruption, the new Apple-provided measurement solution did not scale as expected, making it more difficult for our advertising partners to measure and manage their iOS ad campaigns.” Snap stock forecast also fell off today.
Snap’s Thursday results are indicative of what to expect from tech companies this quarter, which have long been concerned about the impact of Apple’s iOS 14.5 changes on their advertising businesses. This includes Facebook and Twitter, which will both report third-quarter earnings next week.
The iOS 14.5 privacy changes make it simple for iPhone and iPad users to prevent companies like Snap and Facebook from tracking their device activity. This is bad news for businesses that rely on online advertising because it makes proving the effectiveness of their advertising products to their advertising clients more difficult.
Apple released iOS 14.5 in April, but the specific privacy changes affecting online advertising were gradually rolled out to all users over the next few months. These companies did not feel the impact of Apple’s changes during the second quarter, but as Snap’s Thursday results demonstrated, the effects of iOS 14.5 are now nearly fully implemented.
Facebook, in particular, may be in for a bad quarter when it reports third-quarter earnings on Monday.
No company has been more outspoken about the negative consequences of Apple’s privacy changes than Facebook. Since July 2020, when CFO Dave Wehner warned that Apple’s changes could harm Facebook’s ability to target ads, the social media giant has been sounding the alarm about iOS 14.5. The company then acknowledged in August 2020 that Apple’s changes could result in a more than 50% drop in Audience Network, one of its advertising businesses.
The company has been so concerned about iOS 14.5 that it launched a campaign earlier this year, claiming that Apple’s changes would impede small businesses’ ability to reach their customers. This is why, following its second-quarter results, Facebook told investors that it expected “year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth” in its guidance for the second half of 2021.
Twitter is also in danger of having a bad quarter for the same reasons. Twitter stock forecast is now at $60.
Apple has been far less pessimistic about iOS 14.5 than Facebook has been. In fact, Twitter sounded positively ecstatic in March, claiming that Apple’s changes could provide an opportunity for Twitter to compete more effectively with its peers. Facebook stock forecast is now at $315.
But, at the end of the day, advertising accounts for more than 88 percent of Twitter’s total revenue. Recently, the company decided to sell a portion of its advertising business, the MoPub mobile ad network, to AppLovin, a game developer and ad-tech company, for $1.05 billion in cash.
Twitter will release earnings after the bell on Tuesday.
Snap had previously spoken positively about Apple’s privacy changes. In February, CEO Evan Spiegel praised Apple’s consumer-friendly changes. On Thursday, he sounded far less enthusiastic about the changes.
“This has been a very frustrating setback for us,” Spiegel told analysts on Thursday.
We’ll soon see how infuriating Facebook and Twitter’s privacy changes have been.
Netflix recovers after earnings
“We estimate Netflix is currently trading at 8.8x 2022E revenue, as opposed to 8.1x implied by our PT, which is more in line with the company’s historical trading range.” “We’d also add that revenue growth will likely continue to slow in 2022 (we estimate 15% revenue growth in 2022, compared to 19% in 2021),” wrote Deutsche’s Bryan Kraft.
“We believe it is difficult to justify Netflix’s recent multiple expansion at a time when revenue growth is slowing,” the analyst added.
Last quarter, Netflix added 4.4 million global paid net subscribers, exceeding the 3.84 million expected by StreetAccount analysts polled. While earnings exceeded Wall Street expectations, revenue came in at $7.48 billion for the quarter, as expected.
Netflix expects to add 8.5 million subscribers this quarter and earn $7.71 billion in revenue.
Netflix shares fell 2.5 percent in premarket trading Wednesday, adding to their losses following the Deutsche Bank call. The stock had risen by 20% in the three months preceding the announcement of the results.
Bitcoin futures ETF gets interesting
The market also argues that what began on Sept. 2 – and as far back as the spring in terms of isolated corrections and retrenchment by cyclical and speculative stocks – was mostly a seasonal shakeout to reprice for softer growth, recast attitudes about inflation/Fed policy, and reset valuations for slowing earnings growth.
The tape may not be fully back in gear – we’re still seeing some erratic daily new high/low clusters, and the heavyweight Nasdaq stocks are doing most of the heavy lifting. According to some tactical analysts, the market regained a lot of lost ground in a big bite and may have to cut lower, possibly as earnings season winds down. However, the burden of proof has shifted back to the bears in general.
When we compare the recent seasonal shakeout to the September-October correction last year, we see that the absolute moves were sharper and larger last year – huge momentum surge into the peak, nearly a full 10% correction, retest, eight weeks in total. This year’s rally into the September 2 peak was gentle, with low momentum, barely reaching a 6% pullback, with the low coming less than five weeks after the top. Perhaps the slingshot wasn’t pulled back far enough to propel the indexes as quickly or as steeply higher as it did a year ago.
In general, a more balanced market that appears to be a familiar slow-rotating grind with an upside bias for the time being. Growth stocks have pushed higher and led off the Oct. 4 low, even as long-term Treasury yields have risen. They were also more oversold at the low, so refrain from drawing broad conclusions about style leadership from this point.
As previously stated, there is nothing essential or reliable in the growth stocks that move inversely to yields. True, higher yields have recently coincided with cyclical/value outperformance. Notably, cyclicals have held up well: banks are setting new highs, and consumer cyclicals are strong bid. Right now, the market is not a zero-sum game.
The BofA monthly fund manager survey – a snapshot of sentiment from one to two weeks ago – reveals that the crowd had zigzagged toward caution just before the markets zagged higher, a welling-up of caution preceding this rebound.
The usual push-pull of earnings reaction is underway, with JNJ gains offsetting PG losses. Although it is still early in the game, aggregate numbers will be significantly higher than expected, with goblins appearing on the cost line, potentially pinching forward quarters’ estimates.
Treasury yields are leveling off a little, and the yield curve is re-steepening after a period of radical flattening caused by heavy selling of short-dated paper as markets rushed to price in sooner and possibly more Fed rate hikes. Some of that action is being unwound, but not all of it.
Bitcoin ETF is greeted with open arms by the crypto retail set, resulting in a slew of small trades and BTC returning to the highs. When the GLD gold ETF and the USO oil ETF were launched (in 2004 and 2006, respectively), the respective commodities surged on a burst of excitement, but quickly fell back below their launch levels. Those peaks were not decisive long-term tops, but chasing them after the ETF launches was a mistake. We’ll see what happens.
Stock-market breadth is adequate, but not exceptional, as evidenced by 60/40 up/down volume.
VIX is trading below 16, confirming the message of a more balanced, steady tape for the time being. Not quite in the “boring bullish vortex” mode that we’ve seen in previous summer and year-end slow-motion rallies when VIX undershoots 10 at times. It’s a long way from here to there, but you never know.
Might be a bad earnings report for Virgin Galactic stock
Virgin Galactic announced last week a reorganization of its testing schedule, postponing any future spaceflights to begin an eight- to ten-month refurbishment and improvement process on its vehicles.
The Wall Street firm reduced its price target for Virgin Galactic from $25 to $17 per share. Morgan Stanley’s new target represents a 14 percent drop from the stock’s previous close of $19.72 per share.
On Tuesday, the stock of Virgin Galactic fell by less than 1%.
Morgan Stanley has joined UBS in lowering its forecast for Virgin Galactic, with the latter downgrading the stock to sell with a $15 price target on Sunday.
Aside from the lack of upward momentum, Morgan Stanley sees “a potential negative catalyst on the horizon for the stock as the lock-up period for 28 percent of shares outstanding expires on October 25, 2021, potentially furthering near-term pressure on the stock,” Liwag wrote.
So far, Virgin Galactic has built two spacecraft: VSS Unity and VSS Imagine. The latter vehicle, the first of its SpaceShip III class, has yet to take to the skies. The company announced plans to build a second SpaceShip III vehicle called VSS Inspire, but Morgan Stanley questioned those plans.
“We no longer expect Inspire to be built,” Liwag said, “because we expect the company to focus more resources on developing and building Delta” class spacecraft.
Morgan Stanley also expects the first Delta class spacecraft to fly in 2026, a year later than its previous prediction that Virgin Galactic would debut the next generation in 2024 or 2025.
