An unexpected warning about the deteriorating economy by Snap Inc. Chief Executive Evan Spiegel rippled through internet and social-media stocks late Monday, potentially ruining the comeback attempt from earlier in the day.
After the market closed with strong gains Monday, Spiegel spoke at a JP Morgan technology conference, and the company stated in a regulatory filing that its second-quarter earnings would come in below its prior estimates. The economy deteriorated further and faster than Snap SNAP, when it gave its forecast last month, Spiegel said at the conference. He said that Snapchat is looking for ways to cut costs and that it is slowing its hiring pace for the year.
After a rollercoaster ride last week, Snap's shares plunged more than 30% in after-hours trading, and the stocks of other internet and social-media companies fell. Alphabet Inc. GOOGL fell 3.6%, Facebook parent Meta Platforms Inc. FB fell 7%, Pinterest Inc. PINS fell 12%, and Twitter Inc. TWTR lost an additional 3.7% after Elon Musk claimed his deal to buy the company was on hold.
Mirror said Snap, like many other businesses, was dealing with supply-chain issues, inflation, concerns about interest rates and the war in Ukraine. He said there was a lot to deal with in the macro environment but he said we are focused and focused on the long term and investing through it.
The comments by Snap could be an indication of further deterioration in the internet sector, with an overall internet advertising slowdown as the macro economy slows. It turns out that Snap and Facebook were hardest hit by the changes last year, when the impact of Apple Inc. AAPL, privacy changes on platforms that depended on ads was felt.
This time, Snap could be the canary in the coal mine for the broader internet sector which has been under big pressure during the tech wreck this year. While the S&P 500 Index SPX is down almost 17%, individual stocks have fallen much harder on a year-to-date basis: Alphabet is off almost 23%, Pinterest is down nearly 38%, and Twitter is down about 12% this year, as it was briefly pumped up by Musk's $44 billion takeover bid.
A number of tech giants talked about cutting spending and even some jobs in the past few weeks because of the changing environment. HOOD is cutting 9% of its workforce and others, like Uber Technologies Inc. UBER, are slashing costs in other ways for now.
Snap's comments could have an impact on the ongoing soap opera over Musk's deal to buy Twitter for $54.20 a share. Musk wants the deal to be put on hold because he claims that Twitter's count of spam fake accounts is inaccurate at around 5%, and he believes it could be much higher. The market bounced back Monday after a short dip into bear territory last week, but that rally could be brief. The tech stocks have had a big run-up over the past two years of the epidemic, but now they have become one of the biggest drags on the overall market. It is not known whether Snap is a bellwether, but it could be another indicator of more bad news to come.