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Snap CEO Evan Spiegel sent the digital advertising space into a tailspin and social media stocks down with a bad earnings report forecast.
Since Snap (NYSE: SNAP) recently admitted worse earnings and revenue guidance for the current quarter, social media stocks have felt the impact. On Monday, a note to employees by CEO Evan Spiegel warned of slowing growth. Part of the company CEO’s ‘red flag’ note read “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month.”
The disappointing forecast ruffled investors and rattled the entire digital advertising industry. This is because social media companies were already grappling with challenges on several fronts. Some of these challenges include the war in Ukraine, supply chain constraints, and inflation-induced reduction in digital ad budgets.
As it stands, shares of leading online advertisers and social media platforms may lose a combined $200 billion from this unsavory development.
Snap alone is already on course to lose $15 billion in market value. The company’s shares had already plunged more than 40% following the grim announcement, which spooked investors. Snap shares are currently trading at $12.79, well below the firm’s 2017 IPO price of $17.
Prior to the social media stocks collapse, the company had previously anticipated Q2 growth of up to 25%. However, in addition to now missing quarterly revenue and profit targets, Snap is not looking to hire as much.
The values of several other tech shares also dropped dramatically. For instance, Meta Platforms (NASDAQ: FB) declined 7.6%, Google parent Alphabet Inc (NASDAQ: GOOGL) retraced 5%, while Twitter (NYSE: TWTR) fell 5.6%. Also, image-sharing giant Pinterest (NYSE: PINS) saw its stock plummet by a staggering 23.6%.
Some analysts suggested macroeconomic policies at play were the overarching reason for the tech predicament. Speaking directly to this, JMP Securities analysts posited that “macro headwinds likely extend to all of digital advertising.”
Furthermore, analysts at Atlantic Equities also expressed their opinion on Spiegel’s letter and the broader economic scheme, saying:
“Coming just a month after issuing guidance this would seem to highlight the current rapid pace of change in underlying economic conditions, with this likely to have negative implications for online advertising peers and also the wider internet sector.”
Snap and Other Social Media Stocks Rekindle Dose of Reality
Snap’s recession in market value represents a growing trend among social media stocks. This is because many of these stocks are reverting to an earlier state before digital advertisers spurred growth. Such social media market value growth occurred during the recovery phase of the pandemic as advertisers looked to regain lost ground. Speaking on the market value revert, Brian Wieser of ad agency GroupM said “there’s a resetting of expectations.”
Wieser also explained that inflation continued to be a stumbling factor in revenue for these social media platforms. However, he pointed out that Snap and others overhyped their ability to sustain that kind of rapid and massive growth.