The downside surprises in Wednesday's earnings report from Facebook parent Meta could foreshadow struggles for smaller social media stocks, according to Wall Street analysts. The company missed earnings and user estimates for the fourth quarter , and its first-quarter revenue guidance also came up short of analyst expectations. The stock was down 20% in premarket trading on Thursday. The rough report for Meta appeared to be hitting smaller social media stocks as well. Shares of Pinterest , Snap and Twitter were all under heavy pressure Thursday morning. "We think Meta results bode poorly for the online advertising space on a number of vectors," UBS analyst Lloyd Walmsley said in a note. "On revenue, Meta results imply a growing headwind from a number of factors into 1Q including growing privacy headwinds and increasing engagement pressure from TikTok, both of which are likely to impact the [small- and mid-cap] advertising space." "We think Snap looks most exposed, but Pinterest and Twitter also likely guide 1Q below consensus," Walmsley added. KeyBanc analyst Justin Patterson cut his price targets for those three stocks Wednesday evening, citing the insights from Meta and Alphabet's reports. "Specifically, we see: 1) ongoing ad measurement headwinds driving shifts out of social; 2) vertical headwinds (e.g., retail, gaming); and 3) margin pressure from investment," Patterson wrote. Patterson did maintain his overweight rating on all three stocks, noting that valuations have already compressed, but said the increased focus on the metaverse and the next phase of social media could hurt the companies without cloud businesses. "We estimate both Alphabet and Meta will be spending a combined ~$60B in capex in 2022E," the analyst said. "By contrast, Twitter has adapted a hybrid cloud strategy while Snap and Pinterest are both public cloud users. Given the strategic importance of AI and the increased demands of more immersive environments, we increasingly wonder if lacking data centers is a strategic disadvantage for large-scale advertising companies." -CNBC's Michael Bloom contributed to this report.
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The downside surprises in Wednesday's earnings report from Facebook parent Meta could foreshadow struggles for smaller social media stocks, according to Wall Street analysts.