Deteriorating

Snap’s profit warning sends tech stocks tumbling on fears of an ad-market crash

Wednesday, May 25, 2022 by Robinhood Snacks |

Fall from grace… In the time it took you to lose your Snapstreak, Snap lost $15B in market cap. Shares plummeted 43% yesterday — the worst day ever for the Snapchat parent. Driving the plunge: Snap warned investors that it expects growth to slow as macro conditions continue to “deteriorate” (CEO Evan Spiegel mentioned inflation and war… and even the supply chain).

  • Quick reversal: Just four weeks ago Snap gave a relatively upbeat forecast for the current quarter. But Spiegel said the economic environment has gotten worse than expected since then.
  • Bumpy road ahead: As a result Snap pumped the brakes on revenue, earnings, and hiring expectations for the year.

Snap’s ghost casts a long shadow… Snap’s ominous update halted the tech industry’s fragile rebound attempt: social-media stocks alone lost about $165B in market value after the warning, as the Nasdaq fell 2%. But those that rely on digital ads got hit hardest:

  • Bad news for ad views: Shares of Twitter, Google, and Meta all fell by around 5% yesterday. Smaller platforms had it even worse: Pinterest plunged 24%.
THE TAKEAWAY

Advertisers are tightening their belts… just like everyone else. Snap’s ad business is relatively modest: Meta made 30X more $$ last year. But Snap’s surprise statement caused concern, partly because its ad biz has outperformed its larger rivals’ by adapting more quickly to Apple’s privacy updates and sustaining strong user growth. So if Snap’s struggling, other companies highly dependent on digital advertising might be on track to do worse. Cue: Meta’s market cap shed $53B yesterday — more than twice Snap’s entire valuation.