December 8, 2022
  • December 8, 2022

Ad-Pocalypse by Meta; Or, Big Tech’s life force is cooling

By on October 24, 2022 0

Ad-Pocalypse now

Don’t you love the smell of Big Tech winnings in the morning?

And oh what a whiff of everything Wall Street is cooking up this week. I say ‘smell’, but it sounds more like a rotting, rotting smell emanating from the revenue confessional.

Remember last week when we said the best part of striving for maximum pessimism… is there always room for more pessimism?

Yeah… that’s kind of how investors feel as we await this week’s earnings reports from Meta (Nasdaq: META), Google’s parent alphabet (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN) and Pinterest (NYSE: PINS).

What I would miss, keeping Greatness meme flowing

One of these things is not like the others…

I know, I know, Pinterest is a far cry from Big Tech’s Google levels, but guess me this, Great: What connects these four names? What is their lifeblood… their digital bread and butter? Their golden goose and other assorted metaphors?

These are advertising expenses. It has always been ad spend.

Analysts are freaking out that ad spending will take a hit this earnings season. And as far as Google, Facebook et al. freaked out by falling ad spend earlier this year, they haven’t seen anything yet, like BTO.

If Snapchat’s earnings last week have anything to do with it… the ad-pocalypse might finally be here… like, now.

The end of the world did not start with an earthquake – REM lied to both of us – but it started with a snap of the fingers. Specifically, the sound of SNAP shares taking a 30% haircut last week after, you guessed it, the company declined to offer advice…again.

Seriously, if you can’t remember the sinking of a report from the parent Snapchat last week, go back and follow up some more. It’s not great for SNAP investors, but it is great stuff, if you catch my drift looking for schadenfreude.

In addition to the horrific revenue numbers, Snap reported that many of its advertising partners were cutting marketing budgets due to “headwinds from the operating environment, inflationary cost pressures and rising cost of capital”.

If everything is as it was in Snap Land… what about those other techies addicted to advertising dollars? Why is Wall Street so pessimistic about the profitability of Google, Facebook and Amazon?

UBS analysts sum it up best:

Sentiment in the online ad space has softened lately, with more anecdotes of budget cuts as well as advertisers holding back a budget in hopes of a Q4 flush.

As for 23, we believe that planning amid this level of macro uncertainty sets the stage for below-consensus growth in 23, even if the macro does not deteriorate significantly from here.

Well well well. How turntables.

On the one hand, we have companies spending less on marketing and ad space, which means Google could make a billion less for the quarter. (Oh no, humanity!)

On the other hand, the pace of these spending cuts is so uncertain that, for big tech companies, giving advice right now would end in failure across the board, whether macro conditions worsen or not. Set the earnings bar too high and you’re doomed in the eyes of Wall Street.

So what you’re saying is that Snap was right all along not to give advice?

Well, that’s the problem: Snap can still disappoint Wall Street advice, even if it doesn’t offer any advice. But hey, it’s Snap… the company can’t even monetize its user base under the best market conditions, let alone in the midst of a recession.

If advertisers with limited budgets have to choose which platform they will market on…it won’t be Snapchat, I’m telling you. It’s Facebook, Google or maybe TikTok.

Meta-investors 2021 vs 2022 Zuckerberg

Yet even Meta isn’t immune to the nervousness of the ad spend apocalypse that has rocked social media stocks. And some meta-investors aren’t waiting for the report to see how bad the damage is — they’re demanding action. Right here, meow.

Altimeter Capital, which owns around 2 million META shares, just hit Facebook with an open letter. The requests? Putting the lotion in the basket – expect, no, bad demands.

Altimeter is actually demanding that Meta cut staffing spend by 20%, limit the amount of money (and effort) put into the metaverse…and just focus on social media platforms. You know, what actually makes Meta money? *Cough* Not you, Oculus. *Cough*

It’s almost like… we’ve mentioned this exact thing before? A few weeks ago, when Zuckerberg could barely get himself excited about the company’s new VR hardware, not to mention consumers and investors.

Meta is losing over $10 billion a year on technology for a metaverse that still has years to come, while losing advertising dollars and user engagement. No one has time for that this earnings season.

If you’re investing in Big Tech that depends on bills of dollars from advertisers…keep an eye on this week, as these companies report. The ad-pocalypse could be underway as you read this.

Luckily for you, Wall Street legend Ian King is no stranger to bear market fortunes.

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If you have any thoughts about today great stuffcontact us in the old inbox: [email protected] is the best place to reach us.

In the meantime, here’s where you can find our other trash – uh, I mean where you can find some more Size:

Until next time, stay Great!

The Great Stuff Team