What Will Threads Mean for Meta?
September 14, 2023 (Investorideas.com Newswire) Beset by the Fed's insistent campaign of interest-rate hikes and widespread anticipation of a recession, Amazon and Netflix stock lost half of their value last year, while the S&P 500 shed as much as 19%. Meta Platforms struggled additionally with a change of policy at Apple Inc. that interfered with their ability to earn from iPhones ads. On top of that, traders were less than enthused about the company's heavy focus on developing the metaverse. The result, for CEO Mark Zuckerberg's tech mammoth, was a historical 64% loss in share value.
The strategists polled by JPMorgan at the start of 2023 saw much room for growth, however, and named Meta as their number one candidate among internet stocks for a cheerier year. In the first quarter of the year, still-looming economic clouds made for lower ad budgets all round but, despite this, at the start of April, Meta shares were worth 140% more than they were back in November. The root cause of the rally "is likely traced to both extensive cost-cutting measures and adjusting to the negative effects of Apple's privacy changes", in the view of ETF Action's Mike Atkins. Zuckerberg showed he was in earnest about streamlining his operation when he laid off thousands of employees, and traders seemed to like it.
And then, when July rolled in, (and Meta shares had more than doubled in value for 2023), Zuckerberg came out with a product that could deliver his company another cool $8 billion in annual revenue. It wasn't, technically, a new product but that's not unusual for Meta, who have successfully swooped down and mimicked tech rivals on at least two occasions before: when they introduced their Reels feature, (based on the popular TikTok video app); and when their Stories feature was unveiled, (which bore a striking resemblance to Snapchat). This time, the company that couldn't help but sense Zuckerberg's admiring gaze was Twitter. "There should be a public conversation app with 1 billion-plus people on it", insisted the Meta CEO. "Twitter has had the opportunity to do this but hasn't nailed it. Hopefully we will".
Taking on Twitter
Meta are not the first people to face off with Twitter. Companies like Bluesky and Mastodon have done it before, but they found it difficult to build their networks up to a competitive scale. Other challengers have hit a snag in filtering out undesirable content. By contrast, Threads will simply connect with the readymade infrastructure on Meta's wide-reaching Instagram app, which is used regularly by an astonishing 1 billion people. The same controls used on Instagram for cutting out questionable material will apply to Threads. In addition, the elite group of Instagram blue badge holders will be able to enjoy their status equally on Threads. Meta also aim to eventually give Threads customers the power to interact directly with users of competing apps. The launch went well for Threads, inspiring 70 million people to sign up in only two days.
Not So Fast
Let's not forget that inflation is yet to sufficiently cool down and that a recession is widely expected to arrive this year. It's true that tech shares have been lifted up by anticipation of a switch in Fed policy, and it's true that, just in the week ending May 10th, traders injected as much as $3.8 billion into these sorts of stocks. But Michael Hartnett of Bank of America is skeptical and expects a "recession to crack credit and tech as in ‘08", referring to the financial crisis of 2008. Concerns about a scarcity of credit have abounded especially since the collapse of Silicon Valley Bank earlier this year. Hartnett also points out that hopes of a swift Fed turn for the dovish may be misplaced. Looking specifically at Meta, it's wise to bear in mind that, "To a large extent, Meta's recent surge is simply recovering from being oversold", as Mike Atkins puts it.
Tying Up the Threads
There is likely to be some lively competition in months ahead between the likes of Elon Musk's Twitter and Zuckerberg's Threads. Musk's social media titan was believed to host about 237.8 million customers as of July last year and they have been suffering abandonments by large sections of their customer base due to changes made at the helm. Users of Meta apps in 2022, by contrast, numbered over 3 billion.
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