Meta CEO Mark Zuckerberg recently emerged as a Wall Street favorite, while Snap CEO Evan Spiegel struggled to maintain investor confidence. Both companies faced challenges due to Apple’s iOS privacy change and various economic factors in 2021, resulting in a decline in their ad businesses and layoffs. However, the diverging paths of Meta and Snap became more evident this week. Snap’s stock plummeted by 14% after issuing a disappointing forecast, whereas Meta’s stock soared by nearly 7% based on better-than-expected results and promising guidance for the third quarter. Meta’s shares have surged by over 160% this year, while Snap’s have increased by 20%, roughly in line with the S&P 500.
Interestingly, neither Zuckerberg nor Spiegel intend to curtail their spending on experimental ventures. Meta continues to invest billions of dollars into the futuristic metaverse, while Snap directs its cash flow towards augmented reality products and services. Both companies heavily emphasize the benefits of artificial intelligence. However, the key difference lies in Meta’s ability to optimize its finances. While Snap experienced a 4% drop in revenue during the second quarter, Meta achieved solid growth due to the success of Facebook’s ad business.
Meta’s Chief Financial Officer, Susan Li, attributed the increase in advertising revenue to greater spending by online retailers and Chinese companies, as well as the adoption of Meta’s Advantage+ service by online advertisers. This service has enhanced the effectiveness of Meta’s ad system following the iOS privacy change. Despite the revival in ad revenue, analysts raised concerns about the rationale behind Meta’s investment in the metaverse and growing losses in the company’s Reality Labs unit. Zuckerberg argues that the metaverse investment is crucial for Meta to establish its own platform, distancing itself from its reliance on competing platforms like iOS and Android. Nevertheless, Zuckerberg acknowledged that the success of this bet is uncertain and may take years to materialize.
On the other hand, Spiegel positioned Snap’s AR projects as long-term investments that align with their core platform, rather than entirely new endeavors. However, analysts expressed concern about the allocation of resources towards long-term projects that are not generating immediate revenue. Unlike Meta, Snap is still grappling with profitability issues, primarily due to increased infrastructure spending aimed at enhancing user experience and improving ad targeting capabilities through AI. Some analysts question Snap’s ability to excel in these areas while delivering attractive returns to investors as a relatively small-scale platform.
In conclusion, Meta and Snap are on divergent trajectories, with Meta demonstrating financial stability and growth while Snap continues to face challenges. The success of Meta’s metaverse investment remains uncertain, but Zuckerberg believes it aligns with the evolving direction of the world. On the other hand, Spiegel positions Snap’s AR projects as extensions of their core platform. Nonetheless, Snap’s profitability is hampered by significant investment in infrastructure and AI, leaving doubts about its ability to deliver satisfactory returns.
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