After Snap Inc. warned about its profit warning, social media stocks are poised to shed more than $100 billion in market value, adding to the woes for the sector that is already reeling due to stalling user growth and rate-hike fears.
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Shares in Snap are poised for a record one day drop, down 32% in premarket trading. If that move holds, the company will lose $10 billion in market value. The group could see $100 billion wiped out because of the declines for peers like Facebook-owner Meta Platforms Inc., Google-owned Alphabet Inc., Twitter Inc. and Pinterest Inc.
Our sense is that this is more macro and industry-driven versus Snap specific, according to Piper Sandler analyst Tom Champion.
Other Wall Street analysts agree that a slowing macro is likely to affect advertising results across the broader Internet sector, although we believe platforms that are more exposed to brand advertising — like Twitter, Google's YouTube and Pinterest — are likely to have a bigger impact overall, according to Citi analyst Ronald Josey. The owner of Snapchat, which sends disappearing messages and adds special effects to videos, reported quarterly user growth in April that surpassed estimates. Analysts noted a rapid deterioration of the economic environment with the company saying a month later that it won't meet prior forecasts for revenue and profit.
At a challenging time, Facebook and Google are competing for advertising dollars. The recent privacy changes such as Apple Inc.'s tracking restrictions, have slowed businesses that were booming during much of the pandemic, which is putting pressure on companies and consumer spending.
User growth is a big focus for social media firms as they try to attract new customers to target ads in an already saturated market. In February, Facebook-parent Meta posted the biggest one-day wipeout in market value for any U.S. company, after saying that user additions stalled.
Social media stocks have been hit by the Federal Reserve's path of rate hikes, with technology stocks that are valued on future growth expectations.
The 100 futures of the Nasdaq fell by 1.8% in premarket trading on Tuesday, but were expected to reverse most of Monday's advance for the gauge. The tech-heavy index is down 26% this year, wiping out several hundred billions in value from Apple to other so-called growth peers like Netflix Inc.
Russ Mould, investment director at AJ Bell, expects the US markets to have a bad day when trading kicks off.
In turn, that will cause investors to be in a bad mood and create more storm clouds, just at the point when many were hoping the market slump was close to bottoming out, Mould said.
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