This week, Twitter and Facebook lowered guidance stating weakening demand from advertisers. This is important for Pinterest, The Trade Desk, Telaria and/or Rubicon and Roku.
I had stated on the forum to a few readers that Twitter’s lowered guidance doesn’t sit well with me. I was waiting to see if another company would come forward and Facebook did the next day to say the same; ad revenue is weakening.
Facebook is a bellwether for advertising. Although I don’t like their tracking methods, they have a global reach with 2 billion users, so they have a good read on advertiser demand.
I’m estimating Twitter could lose about 10-15% of revenue from previous guidance despite monetizable daily active users (mDAU) being up 23% Guidance was around $825 to $885 million and the company stated they would be slightly down YoY with the year-ago quarter at $786 million. We know Twitter had strong growth in Q4 at 21% YoY mDAU which correlated to 11% increase in revenue.
Facebook was less transparent about revenue numbers yet did state their usage is incredibly high while they’ve “seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.”
This means demand in advertising is not correlating to eyeballs and mobile usage. This will the first time that has happened since the iPhone was launched. However, this did happen to Google search during the 2008 financial crisis – although growth was not negative, the worst of it was 2% revenue growth in Q2 2009.
Keep in mind, this happened quickly as January and most of February were stable months. The other thing that doesn’t sit well with me is the usage in this situation is hitting record highs due to quarantines. In Italy, Facebook’s app usage is up 70%. This disconnect between usage and revenue was not the case in 2008/2009.
We don’t cover Twitter and Facebook specifically on our premium site but we do cover many other ad-tech names.
I think they are all at risk right now of lowered ad demand. If we take at face value what is being communicated, these smaller companies could take a hit on both sides; their operations could be maxed from more usage while ad demand is also down.
Knox is working on new stops for Pinterest, Roku, The Trade Desk and Telaria for anyone still in these positions. He will cover RUBI for anyone in this stock, as well.
We can’t tell you exactly how the market will respond or what will happen to ad-tech revenue. But we do want to keep you apprised of any information we come across and the support levels to watch.
Best case scenario: these stocks follow the movements of the broader market
Worst case scenario: these stocks see more volatility than the broader market as Wall Street is still unsure about many of these names
Regardless, I can’t stress enough using risk management and being patient. This is not an easy situation to navigate.
To be completely transparent, I was very surprised to see the lowered guidance as I thought the increased usage would keep ad-tech insulated for at least a quarter or so.
Although we don’t have information from these other companies as to the impact, I have to take at face value what’s being communicated about advertiser demand. You’re also all well aware these companies are more volatile than Facebook or Twitter.
One thing about the machine trading we are seeing in the market right now is that machines aren’t able to correlate a news headline on Facebook or Twitter through NLP and connect this to the stocks mentioned above. So, that gives any of our readers in these positions time to regroup.
We are trying to be active on the forum as things progress across the board. Here is the update I posted yesterday after Twitter lowered guidance but before Facebook lowered guidance. It sums up my thoughts on this.
“I was a bit surprised by Twitter’s lowered guidance today and to see an ad-tech company already say they will miss Q1. That means ad demand fell off fairly quickly and/or drove bids down quickly as we were halfway through Q1 before this happened. Mobile usage and OTT usage is up but Twitter is the first to cast doubts on where ad spend is right now. SF and NYC have only been quarantined about a week, so I didn’t expect to see an ad company to lower guidance that quickly. If any others come out to lower guidance, then we know this will be a more complicated situation than usage and eyeballs correlating to higher ad spend.
On a similar note, I know some people got FOMO today with Roku, but now we are hearing ads could be shaky. There is no way to really gauge the impact right now of businesses being shut down, to be honest.
Anyone who is super confident on exactly how the coronavirus will impact the tech industry is not taking into account the many variables (that) fuel growth. That may be hard to believe with the green we saw today on the NASDAQ compared to the DOW and S&P500. I think Zoom Video and Twitter are trying to be cautious and realistic in the face of potential “buy the dip” and FOMO buying.
Post-coronavirus, I have strong convictions on our stock list. We may adjust for any consumer 5G and I will add AMD to the list. I’m looking over Docusign right now, as well. But very few changes.
This is a long post to say that I am relying quite a bit on TA at the moment as the recovery in tech and the recovery in the economy is anyone’s guess right now. I’m favoring patience across the board.”