Shares in social giant Snap slumped almost 40% at the stock market open, after the Snapchat owner said that it would miss quarterly revenue and profits targets it set just a month earlier $SNAP
Snap said on Monday it was expecting to miss quarterly revenue and profit targets set just a month earlier and would have to slow hiring and lower spending. Valuations for social media stocks are coming back down to earth after the companies posted unprecedented growth last year when advertisers began to recover from the pandemic, said Brian Wieser, global president of business intelligence at ad agency GroupM.
"There's a resetting of expectations," he said, adding that while economic problems like inflation are partly hurting revenue, Snap and other platforms have also overestimated their ability to maintain break-neck growth. Even so, Snap's valuation of nearly 15 times 2024 estimated earnings before interest, tax, depreciation and amortization, according to Refinitiv data, was significantly higher than Alphabet's 8.5 times and Meta's six times. The bleak view from one of the sector's well-known names underlines the impact of the Ukraine war, surging inflation and rising interest rates on social media companies just when they were trying to shake off the hit from changes to Apple's iOS operating system. "Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook, Pinterest and Google," said Dennis Dick, a trader at Bright Trading LLC.Snap and its peers including Meta are in the path of a storm that also includes increasing competition from TikTok for users' attention and ad dollars, said Jasmine Enberg, principal analyst at research firm Insider Intelligence. Tuesday's selloff comes days after a Bank of America fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years. Analysts said Snap's outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52% in the prior quarter. "There's a lot to deal with in the macro environment today," Chief Executive Officer Evan Spiegel said at a tech conference on Monday.Register now for FREE unlimited access to Reuters.comReporting by Medha Singh and Nivedita Balu in Bengaluru and Sheila Dang in Dallas, Additional reporting by Akash Sriram; Editing by Aditya Soni, Anil D'Silva and Bernard OrrSign up to our investor newsletter to get the latest news and trends in global financial markets.
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