TikTok towers in technology earnings from Google, Facebook, Amazon

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As the heart of the technology earnings season ends, a persistent theme has been weakness in the digital advertising market.

The war in Ukraine, rising inflation, Apple’s changes in privacy and a general decline in advertising spending are helping to explain why Facebook, Google, Amazon and Twitter all reported disappointing revenue figures this week and by Snap last week.

But there is another threat that threatens bigger day by day: TikTok.

The app for short viral videos has grown in popularity and became the world’s third largest social network last year, behind Meta’s Facebook and Instagram, according to Insider Intelligence.

Advertisers follow the eyes.

“Across the industry, short-form videos continue to take up more of the time spent,” Atlantic Equities analysts wrote in a note Thursday. “TikTok has primarily driven and benefited from this trend, with some concern that this created a competitive challenge for Meta.”

TikTok is owned by China’s ByteDance, which is privately owned and reportedly valued at $ 140 billion. Insider Intelligence estimates that TikTok will have 755 million monthly users globally this year, and says its market share in social networks will peak 20% this year, approaching 25% in 2024.

Meta said Wednesday that Facebook ad revenue rose just 6.1% in the first quarter, the slowest growth in the company’s 10-year history as a public company. Total revenue followed analysts’ estimates, as did the company’s forecast for the second quarter, where sales could fall from a year earlier.

Facebook has a product called Reels that competes with TikTok in the short-form video market. The company told investors that 20% of the time on Instagram is already spent on Reels, while 50% of the time on Facebook is spent on videos that “make money at lower prices” than the core products.

“Over the last many years, mobile networking has become faster, and now video is the most important way people experience content online,” Facebook CFO Dave Wehner said on the earnings call. “Short form video is the latest iteration of this, and it’s growing very fast.”

In Alphabet’s annual report, the company recognized ByteDance as a competitor on social networks together with Meta, Snap and Twitter, and as a rival in digital video services, where e.g. Amazon, Apple, Disney and Netflix also have deals.

Alphabet’s results for the first quarter of this week were according to estimates, mainly due to a major bug on YouTube, which was supposed to grow by 25%, but only by 14%. Managers said consumers spend more time on YouTube Shorts, which grew to 30 billion views in the quarter, four times more than a year ago.

“TikTok competition concerns”

YouTube is testing ad formats on Shorts, but in the meantime, analysts are cutting back on their growth forecasts. Stifle lowered its second-quarter growth estimate for YouTube to 10% from 13%, and Cowen Equity Research lowered its projection to 7.5% from 19.7%.

“We think the earnings results were broadly fine, but not enough to soothe investors’ growing anxiety about advertising recession, nor growing TikTok competition concerns, after YouTube missed out again, and by a larger margin than before,” BMO wrote Capital Markets analysts in a Wednesday note. They recommend buying the stock.

Last week, Snap reported disappointing results, with CEO Evan Spiegel telling investors that the quarter “proved more challenging than we had expected.” And on Thursday, Twitter fell short of revenue in the first quarter. The company offered no comment as it is in the process of being acquired by Elon Musk.

Then there’s Amazon.

Unlike the big social media platforms, Amazon is not so clearly tied to TikTok. Advertisers tend to be brands that promote their products on Amazon’s dominant e-commerce site and apps.

However, even Amazon’s fast-growing advertising business came a long way from analysts’ estimates, growing 23% from a year earlier to $ 7.88 billion. Wall Street expected $ 8.17 billion, according to StreetAccount.

“The pandemic and the ensuing war in Ukraine have brought extraordinary growth and challenges,” Amazon CEO Andy Jassy said in a statement, citing the company’s wider downturn.

Ads did not come up much in the company’s earnings call. It was a much more prominent topic elsewhere.

“We hear that concerns have been raised that TikTok is a competitor to YouTube’s mobile position,” Michael Nathanson, an analyst at MoffettNathanson, told Alphabet executives on the company’s call.

“Bears are likely to point to weakness on YouTube, coinciding with growing concern about engagement shift and the revenue generation ramp at TikTok,” Loop Capital analysts said in a note.

Loops Alan Gould took it up with Facebook executives.

“You were pretty open about the competition issues at TikTok, which seems to be affecting the entire industry now,” Gould said on the call. “Any way to quantify how much you think TikTok affects Facebook?”

Wehner proclaimed Facebook’s homemade product.

“I think it’s clear that short-form videos are a huge opportunity for the industry in general, and we’re very pleased with the offer we have with Reels and the opportunity for us to compete for market share and time,” Wehner said. “Of course, other competitors – have strong offers like TikTok, but we are satisfied with what we have with Reels and the efforts we make to cultivate the important product.”

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