MAXIM - Tech giants Facebook, Twitter, Alphabet are due to report their third quarter 2021 financial results next week. On the eve of their shares collapsed after the securities of the social network Snap, whose advertising business "sank" in July-September due to the new privacy policy of Apple. Is it worth investing in tech players now?
What's happened
Shares of the world's largest IT companies fell sharply following the collapse of shares of the social network Snap (by 30%) on Thursday evening, October 21. The leaders of the fall were Facebook and Twitter, which sank 6% on the postmarket. Alphabet (parent of Google) shares fell 2.8%.
What does it mean
In April 2021, Apple changed its privacy policy for iOS apps: the innovations also affected the ads that Snap partners, Facebook and Twitter showed users based on data about them. Previously, the user, by downloading the application, by default gave consent to the use of their data, and it was necessary to prohibit their collection by a separate action. Now the owner of the application cannot process user data until he specifically gives his consent.
Snap shares plunged yesterday following the release of third-quarter earnings and forecast for October-December 2021. “Our ad business has been undermined by changes Apple made to advertising tracking policies for iOS users in June and July. Apple's new solution did not scale as we expected, making it difficult for our ad partners to manage and measure their ad campaigns, ”Snap co-founder Evan Spiegel said during a conference call. Snap's revenue for the third quarter of 2021 fell short of expectations - it amounted to $ 1.07 billion against the $ 1.1 billion predicted by Refinitiv analysts. In the fourth quarter, Snap expects revenue of $ 1.16-1.2 billion, but analysts predicted it at $ 1.4 billion.
Twitter, Google, Facebook also make money from advertising, which makes up a significant share of their income: Twitter - 86.3%, Google - 80.5%, and Facebook - 97.7%. Therefore, the reaction of investors was natural, says Evgeny Shatov, partner at Capital Lab. These companies are due to report July-September financial results next week. The impact of the changes in iOS for Facebook will be most noticeable in the third quarter of 2021, but should weaken in the fourth quarter, Goldman Sachs analysts wrote in a note to investors dated October 7 (Forbes has).
Why do I need to know this
Apple's innovations can completely rebuild the online advertising market, says Capital Lab's Shatov: "The situation at the moment is critical for companies where the bulk of income comes from advertising sales." The changes affected not only technology companies, but also businesses, players in the e-commerce market, The Wall Street Journal points out.
Under the new conditions, the cost of attracting a user for an advertiser may significantly increase, respectively, the demand for such advertising from customers is likely to decrease, which will certainly negatively affect the income of companies, Shatov said.
Facebook ad prices have already increased by 25% for advertisers. At the same time, small businesses that promote their products and services mainly through Facebook and Instagram, changes in Apple's privacy policy forced to reduce advertising costs, writes The Wall Street Journal, which spoke with 20 CEOs of companies in the e-commerce and advertising market.
For the investor
For investors who are willing to take on high risks, buying stocks on a fall can be an opportunity to make money if Facebook, Twitter and Google during their reporting show not only good results for the third quarter (as analysts expect), but also raise forecasts for the fourth or at least they will be left unchanged, says Shatov, partner at Capital Lab. And conservative investors, he continues, will wait for the results of the reporting: if the companies show poor results, this will help to avoid losses, and if they give a positive outlook, then you can buy shares and wait for further growth of securities.
The fall in shares by tens of percent looks strong, but this is due to the peculiarities of the pricing of fast-growing companies, says Nikita Yemelyanov, an analyst at Aton. Usually experts predict revenue growth for the next year, based on the company's growth over the past years, continues Yemelyanov: "If the company lowers its forecast by at least 1%, analysts will extrapolate this for the next years and at the moment a fast-growing share may lose 10% at once." And vice versa: if a fast-growing company raises its forecast by at least 1%, its shares may immediately rise in price by 10% or more, he added. (forbes)
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