Snap’s Terrible Guidance Is Another Big Warning About the Economy

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Snap triggered a slide in shares when it said the economy had deteriorated faster than expected.

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Patrick T. Fallon/Bloomberg

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Ignore it at your own risk.

Some analysts are telling clients not to overreact to news that Snap has lowered its financial guidance, citing a more difficult business environment. But it’s likely that the social media company’s latest forecast is another sign that investors’ worst fears are coming true.

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The global economy is disappearing at a rapid pace.

In a filing Monday, Snap (ticker: Snap) said it now expects year-over-year revenue growth for the second quarter to fall below the low end of the 20% to 25% range, with management asking investors to Had it. months ago. CEO Evan Spiegel told the JPMorgan technology conference that concerns over supply-chain problems, rising inflation and rising interest rates are affecting many businesses.

“The macroeconomic environment has certainly deteriorated faster than we expected,” he said, adding that the company is slowing hiring to manage its spending more prudently.

The market was shaken by the warning. Snap (ticker: Snap) fell 39% to $13.63 in early trading Tuesday. Other companies with digital ad exposure also declined, with Meta Platform (FB) down 9%, Pinterest (Pins) down 23% and Alphabet (GOOGL) down 6%. The tech-led Nasdaq Composite lost 2.3%.

Analysts disagree about whether Snap’s pessimism was primarily driven by company-specific problems or came from broad-based industry trends.

KeyBanc Capital Markets sees Snap’s “guidance update as a warning flag, but not one to sound the alarm across the sector,” analyst Justin Patterson wrote on Monday, noting that the company’s young user base is vulnerable to inflationary pressures. How can I be more sensitive?

But others are more downbeat. “It is highly unlikely that the weakness will isolate Snap, as we expect the macro situation to impact all digital advertising names,” Jefferies analyst Brent Thiel said on Tuesday. He lowered his target for the stock price from $52 to $30.

Two points support the idea that Snap’s issues may be more widespread. First, the sudden and downturn size just weeks after management made its initial forecast suggests that something unexpected is happening. More importantly, Snap hasn’t been alone in delivering the bad news.

Two weeks ago, Twitter (TWTR) matched Snap’s sentiments when it revealed it had fired two senior executives, halted hiring for most roles, and plans to reduce cloud-computing spending. Was. Twitter CEO Parag Agarwal says said The industry was facing “a very challenging macro environment”. And this month several other technology companies also disclosed that they were cutting marketing spending and other expenses, pointing to weakness in their businesses.

Then there are the big retailers. Last week, Walmart (WMT) and Target (TGT) stunned investors when they reported disappointing earnings results, expressing uncertainty about when inflation for goods and energy will ease. Target said its freight spending would be $1 billion more this year than three months ago.

If some of the biggest companies with their vast purchasing power are struggling to manage cost inflation, it probably means that nearly everyone is facing similar macroeconomic pressures.

Ultimately, Tuesday’s market reaction to Snap’s update may be for good reason.

Write to Tae Kim at [email protected]

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