Angelo Gino, Senior Equity Analyst at CFRA Research, discusses Pinterest and Snapchat’s first quarter earnings and analyzes the impact of AI integration on the broader social media landscape.
video transcript
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Dave Briggs: All right, Snap and Pinterest stocks fell after Q1 earnings. Earnings are down 9% on Pinterest and 18% on Snap. Let’s talk with Angelo Zino, Senior Equity Analyst at CFRA Research. oh. Angelo, nice to meet you. We give you a blank slate. your reaction. Let’s combine the two. Is it a problem with both ads?
Angelo Gino: Well, listen, it’s really interesting, especially after what we’ve seen here recently. So obviously it’s a bit of a mix. In other words, it was the fun of misses on top-line snaps. But more important is the guidance side of things, or the lack of guidance on both sides of things.
On the Snap side, there’s definitely concern about the top line here, how they’re navigating the current advertising landscape. In case you forgot, it’s a tough macro economy and a generally tough ad spending environment.
And on the Pinterest side, in terms of monthly active users, I think it’s been pretty good overall in terms of sales. I think the concern in that regard was that the RPU was a bit of a failure on our part. And going into Q2, I think here’s where he gets some of the concerns on the OpEx side. Perhaps we won’t always see the type of earnings power that some investors would have liked to see.
– So, Angelo, what is it? Yes, it turns out that Pinterest hasn’t been hit as hard as Snap. Now let’s focus a little more on Snap’s performance. They posted a loss. A clear ad weakness. They blamed the upgrades they made on the platform. What does Snap need to do to catch up with mega-capped tech companies like Meta?
Angelo Gino: yeah, listen I think the biggest issue for them is that they put a little more emphasis on the brand advertising aspect. [INAUDIBLE] There’s a little more emphasis on the funding, advertising side, and obviously, the alphabetic and meta side.
But listen, I think this is one of the examples out there. If you look again at the wider economy here and the ad space here and what many of our customers are going through. I think you have to make a decision, right?
And when you start thinking about it, we think the best options are clearly out there.The best games in town continue to be on the search side.A few days ago we also saw growth in Alphabet’s search business. I got it. Next, let’s talk about Meta’s business. You’ve clearly seen 3% growth, 6% on a constant currency basis, which is a nice number. In other words, it is clear where the money flow on the customer side is coming from. And it’s very difficult for a small company like Snap to navigate and succeed in this market.
Dave Briggs: Yeah, it really helps to understand what the meta has achieved, right? Everyone is rushing to put AI in a row or two. I was actually surprised that Snap did. I’ll explain why in a minute. However, Evan Spiegel said, “We are working to deepen our engagement with content platforms and build innovative new features and services like My AI.” How is the deployment of AI and chat received by users?
Angelo Gino: Yeah, listen, I think they’re doing what everyone else is doing. And they’re trying to – they’re trying to invent as much AI in their own ecosystem as possible. So, obviously, they’re looking to leverage AI in terms of meta trying to generate better content on their end. That’s why I’m trying to use it for the long term.
And when I started thinking about AI in many ways, I needed AI, AR, and the Metaverse. So all these things will consolidate at some point. And we’re starting to see signs of that. But when it comes to opportunities, on the Meta side, sorry, on the Snap side, it doesn’t look like it at the moment. My AI is a little addition to the platform. This is what is being rolled out to everyone who is not a subscription. But that doesn’t necessarily make it very unique from the rest.
Dave Briggs: Yeah, users are very critical of using chat. Diane wants to ask about Intel. But before we do that, we wanted to hear about the announcement that just came out of the Pinterest switch. They partnered with Amazon to tap third-party advertising demand on Pinterest, starting with Amazon as their first partner. It’s an interesting partnership there. what do you know about it
Angelo Gino: I don’t know much about it. But looking at who’s taking the lead on Bill Ready, we expected to see more types of partnerships and opportunities on the e-commerce side. So, obviously, he has his PayPal relationship with Venmo, where he’s the CEO of Venmo.
So when you start thinking about why we love Pinterest so much, it has a lot to do with who runs the ship and obviously the platform is so unique compared to other platforms. And I think this is something that potentially makes a lot of sense. And it wouldn’t necessarily be a surprise to see more such opportunities from them in the future.
– Angelo, let’s get back to Snap. What cost-saving measures should you undertake in light of this latest quarterly report? Think about how efficient Meta had a year and how it helped. You have to play both offense and defense. So how does Snap catch up?
Angelo Gino: Yeah, listen, let’s be honest, this is a peak-to-85%, 90%, peak-to-trough company. This is the name he actually bought in January this year. Most of the time it trades in the $8 to $12 range. But a big reason we upgraded our stock was because this was the company that started righting their business model. They have cut their workforce by 20%.
Our view was that once the business started to see some scalability, it would start to show some performance in terms of revenue potential. The current problem is that the revenue stream is not visible due to macro challenges. So, do we see more potential in terms of cost savings? I think it is possible.
And I think that’s what all these companies have recognized here over the last few quarters. If it’s not working on the revenue side, they do more on the cost side, but as far as Snap’s results are concerned, his EBITDA numbers and free cash flow numbers after adjustments are where we I think it exceeded my expectations. So there was some good execution on that front.
Dave Briggs: 20% off after hours. Intel fell 2% on him after the report. Basically expected to bottom as they turn the ship around. What’s your reaction to Intel?
Angelo Gino: Well, I mean, listen, this was a very low hurdle they had to meet. However, as far as guidance is concerned, I mean, it’s definitely about that aspect. Our view was that gross margin would bottom out in his March quarter.
The gross margin guidance for the second quarter actually looks lower than what we saw in the first quarter. So – and under where the street is. So, definitely, I think the disappointment is right on that side right now. We probably won’t see a recovery in inventory until at least we see some recovery on the margin side.
But when you start thinking about what some of these cloud providers have announced, what they’re investing in right now, they’re continuing to invest in these accelerators and they’re trying to make their platforms faster from an AI perspective. . And they are sacrificing other aspects of the investment field. For example, servers where Intel is the primary performer.
So it’s not necessarily still up in terms of revenue. We think it’s a bottoming out process. But at this point, so when you start thinking about Intel, the loss of share they’re experiencing, the fact that we’re still seeing inventory overhangs on the PC side, it remains a tough story to get right behind . now.
– Ok, thanks for helping me sort these numbers by Angelo Zino, Snap, Pinterest, and Intel. Angelo, thank you very much.
