What happened
Shares of beaten-down social media companies Snap (SNAP 6.70%), Twitter (TWTR), and Pinterest (PINS 0.43%) all rose handily this week, up 11.9%, 10.4%, and 8.1%, respectively.
These three stocks had each been under pressure coming into the week, and really, had been beaten-down since their third-quarter earnings reports. However, now with more reasonable valuations and omicron variant fears ebbing somewhat this week, they all rose handily. Additionally, Twitter's new CEO gave his first interviews, and some positive analyst commentary on Snap and Pinterest didn't hurt, either.
Image source: Getty Images.
So what
Even before late November, all three stocks had already been down significantly following their third-quarter reports. Changes to iOS 14 has made ad targeting more difficult for social media companies, affecting Snap in particular. Twitter also posted underwhelming monetizable daily user (mDAU) growth in the U.S., as it lagged difficult comparisons to the pandemic. And Pinterest actually saw U.S. monthly active users decline, even though revenue and profits beat expectations as engagement remained strong.
The three sold off even further at the end of November for the same reasons a lot of other growth stocks did. The omicron variant emerged, while Federal Reserve Chair Jerome Powell suggested the Fed may move quicker than expected to contain inflation. Potential higher interest rates would penalize future earnings more than those made today. Since Twitter and Pinterest trade at pretty high multiples of current earnings, and Snap is still losing money on its bottom line, all three were affected.
Besides higher rates, omicron had the potential to limit economic activity and worsen supply chain bottlenecks. That would be bad for advertising dollars, which is how all three companies make money.
However, there were a bunch of positive revelations on omicron this week. Most importantly, Dr. Anthony Fauci, chief medical officer to the president, said over the weekend that omicron appeared to cause milder disease, even if it was more transmissible. And on Wednesday, Pfizer declared that three shots of its mRNA vaccine appeared effective against omicron, although two shots weren't as effective. Lower omicron fear could help to maintain today's strong economic growth and therefore ad dollars for Snap, Twitter, and Pinterest.
Adding to the omicron relief, analysts at Morgan Stanley released a note maintaining their overweight ratings on Snap and Pinterest, despite the potential for more regulatory headwinds next year.
And Twitter's new CEO Parag Agrawal gave his first interview since becoming CEO late last month. In it, he outlined a vision to have Twitter "move faster." Agrawal has already reorganized the company into three divisions -- consumer, revenue, and core tech -- so there may be some additional optimism this week around Twitter's transformation.
SNAP Percent Off All-Time High data by YCharts
Now what
Inflation and the path of interest rates could continue to dominate the movements of stocks in the near term, but over the long term, these three need to adapt to the fast-changing social media trends, regulations, and technologies without the benefit of traditional tracking and targeting tools.
Even after this week's bounce, all three are still down handily from all-time highs, with Snap down 40%, Twitter down 45%, and Pinterest down 60%. There's a lot of uncertainty around each, but the economy appears to be strong, which should help advertising growth in the near term.
Down so much, each company should be on your watch list for 2022, especially Twitter, with its new CEO and vision.
