Social media companies were already having a rough year from the cutback in digital ad spending caused by rising inflation, supply chain challenges, and the war in Ukraine. Forecasts for the second quarter called for meager growth at best, and stock prices were getting hammered.
That was all before Snap CEO Evan Spiegel warned late Monday of an environment that’s worsened since his company reported quarterly results in April when guidance was already disappointing.
In telling employees and Wall Street that “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month,” Spiegel sent a shock across the digital ad industry and sent investors running for the exits.
Snap, which had previously projected second-quarter growth of 20% to 25%, lost an astounding 43.1% of its market cap on Monday. Beyond that, Pinterest plunged 23.6%, Facebook parent Meta dropped 7.6%, Google lost 5% and Twitter sank 5.6%.
Effect of Inflation
The news spurred widespread selling across the advertising and ad-tech space. Among notable decliners, Trade Desk Inc. sank 19%, fuboTV Inc. lost 7%, Magnite Inc. lost 13%, LiveRamp Holdings Inc. slid 8%, Roku Inc. dropped 14%, and Vizio Holding Corp. was down almost 10%.
In addition, Omnicom Group Inc. fell 8.4% and Interpublic Group of Cos lost 4.9%. Snap tumbled on Tuesday registering its biggest intraday decline ever
“At this point, our sense is this is more macro and industry-driven versus Snap specific,” Piper Sandler analyst Tom Champion wrote in a note.
Others on Wall Street agreed, with Citi analyst Ronald Josey saying “a slowing macro is likely impacting advertising results across the broader Internet sector, although we believe platforms more exposed to brand advertising—like Twitter, Google’s YouTube, and Pinterest—are likely experiencing a greater impact overall.”
Stock sentiments
Snapchat in particular has also been hurt by the rising popularity of TikTok and other emerging social media services that younger users have been flocking to, such as Discord and Amazon (AMZN)-owned video game streaming platform, Twitch.
Social media companies have been grappling with the negative impact on advertising revenue triggered by privacy changes from Apple (AAPL) for users of iPhones and other devices running on the iOS platform.
The advertising landscape has analysts concerned, too. Wells Fargo analyst Brian Fitzgerald said in a report Tuesday that “a broad ad market recession appears increasingly likely.”
JMP Securities analyst Andrew Boone cut his price target on Snapchat Tuesday, saying that “the advertising environment is worsening and we have no clear view that this is the bottom.”
