Snap’s warning sends shock across digital advertising as investors flee social media stocks

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  • Snap CEO Evan Spiegel warned of slow growth in a note to employees made public on Monday.
  • His message caused an uproar throughout the digital advertising industry.
  • Analysts pointed to macroeconomic trends that could extend far beyond Snap.

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Social media companies were already having a rough year due to rising inflation, supply chain challenges and cutting digital advertising spending due to the war in Ukraine. Forecasts for the second quarter called for some of the lowest growth, and stock prices were taking a toll.

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Snap CEO Evan Spiegel warned late Monday of an environment that has worsened since his company reported quarterly results in April, when guidance was already disappointing.

Telling employees and Wall Street that “the macro environment has deteriorated more rapidly since we issued our quarterly guidance last month,” Spiegel sent a blow to the digital advertising industry and urged investors to exit. Sent.

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Snap, which previously forecast second-quarter growth of 20% to 25%, lost a astonishing 40% From your market cap on Monday. Additionally, Pinterest is down 23%, Facebook parent Meta is down 8%, Google is down 6%, and Twitter is down about 4%.

“The macro headwind likely extends to all digital ads,” analysts at JMP Securities wrote in a note following Snap’s disclosure. He noted that brand budgets, and digital ones in particular, “are more prone to shrink as companies tighten advertising budgets,” while direct response ads, or ones that encourage viewers to take immediate action, are “Consumers are more engaged with spending, especially eCommerce.”

Analysts at Stifel wrote that the direct response campaign is “likely to be affected slightly more by inflationary pressures,” and noted that Snap “is slightly more DR than the brand currently.”

The outsized impact of Snap’s commentary is surprising given the size of the company. It generates a tiny fraction of the money Facebook and Google earn in a quarter. And Facebook already warned investors last month that second-quarter revenue could drop compared to a year ago, a clear admission from a company that never saw anything below double-digit growth before this year. saw.

But following Spiegel’s letter to analysts at Atlantic Equities there appears to be reasonable concern in the broader market.

Analysts at Atlantic Equities wrote, “Coming just one month after the guidance is issued, it highlights the current rapid pace of change in underlying economic conditions, likely to have negative implications for its online advertising peers and the broader Internet sector. ” “Snap’s warning is explicitly negative for all ad-supported peers.”

Piper Sandler analysts agreed, writing that “it’s more macro and industry-driven versus SNAP specific.”

The result was so widespread that it even affected ad-tech platforms, which link brands to publishers and ad-supported sites and apps. The Trade Desk is down 20% on Monday, while PubMatic is down 15% and Digital Turbine is down 13%. They’ve lost at least 45% of their value this year, compared to a 28% drop for the Nasdaq and a 28% drop for the S&P 500.

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