On Tuesday, social media stocks lost more than 135 billion USD in market value after Snap Inc sent a profit warning. It added to the industry’s woes that are already facing stalling user growth and inflation concerns.
Following the news, shares of Snap, a digital ad-pendent platform, tumbled 43%, its biggest intraday drop ever to trade below its 2017 IPO price of 17 USD. Its shares were down 84% from their peak in September last year.
The selloff erased about 16 billion USD of its market value. It also added to fall for peers, including Facebook parent Meta Platforms Inc, Google owned by Alphabet Inc, Pinterest Inc, and Twitter Inc.
The news led to widespread selling across the ad-tech and advertising industry. Some notable decliners including Trade Desk Inc; which sank 19%, fuboTV Inx; which lost 7%, Magnite Inc; 13%, LiveRamp Holdings Inc; 8%, Roku Inc; 14%, and Vizio Holding Corp; 10%. In addition, Omnicom Group Inc and Interpublic Group of COs were also down by almost 8.4% and 4.9%, respectively.
Worst Day for Snap
“At this point, our sense is it is more industry and macro-driven vs., Snap specific,” said Tom Champion, an analyst at Piper Sandler.
Likewise, Citi analyst Ronald Josey said that “a slowing macro is likely impacting ad results across the internet sector. While we believe platforms are more exposed to brand ads like Twitter, YouTube, and Pinterest are likely experiencing greater impact overall.”
In April, the developer behind the Snapchat app, which delivers disappearing messages and adds unique effects to films, reported quarterly user growth that exceeded expectations. Analysts highlighted a rapid decline in the fiscal situation when the corporation announced just a month later that it would not reach its revenue and profit projections.
“The decline of Snap confirms that the market has a little tolerance for long-duration, higher-growth companies with more volatile profitability in a risk-averse situation,” said Robert Stimpson, CEO at Oak Associates.
Analysts also believe that Snap’s warning signals a peak in ad spending.
“Advertising and marketing tend to be one of the first areas where businesses cut back when times get tough,” said Fiona Cincotta, a senior financial markets analyst at City Index, a UK-based trading service. “The fact that we are saying it now is really striking because the situation has been deteriorating rapidly for businesses and the broader economy.”
At a challenging time, Snap and platforms like Facebook and Google are battling for advertising dollars. Inflation is soaring, putting pressure on businesses and consumer spending. At the same time, new privacy rules, including Apple Inc.’s tracking restrictions, have hampered businesses growing during the pandemic’s early stages.
The Broader Challenge
Social media companies are focusing on user growth in acquiring potential customers to target advertising in an already crowded market. After announcing that user additions had stalled in February, Facebook parent Meta had the largest one-day drop in market value for any US entity ever.
Moreover, broader concerns about the tech industry have weighed on social media companies, with the Federal Reserve’s rate hike plan weighing most heavily on technology stocks that are valued based on future growth projections.
The Nasdaq 100 Index fell 2.2 percent on Tuesday, wiping out the previous day’s gain. This year, the tech-heavy index has lost 28% of its value, wiping out hundreds of billions of dollars from companies like Apple and Netflix Inc.