A grim profit warning from Snap Inc. was issued Monday. SNAP investors have another excuse to shed tech shares.
Snap stock fell more than 40% on Tuesday, falling below the platform's initial public offering IPO price of $17 after Snap Inc. CEO Evan Spiegel warned employees that the company will miss its targets for revenue and adjusted earnings in the current quarter.
Some analysts on Wall Street think softness could be expected from other digital advertising companies after the collapse of Snap shares.
It is highly unlikely that the weakness will be isolated to SNAP, as we expect macro conditions to affect all digital ads, including FB, GOOG, TWTR, PubMatic The Trade Desk and Integral Ad Science Holding Corp. Brent Thill, equity analyst at Jefferies, wrote in a note to clients.
When reporting first-quarter earnings last month, Snap expected revenue growth to be between 20% and 25% and adjusted EBITDA to be between breakeven and $50 million.
The guidance from the SEC filing on Monday stepped back: Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated, the filing stated. We believe that it is likely that we will report revenue and adjusted EBITDA below the low end of our Q 2 2022 guidance range. The news hit social media stocks hard, sending Snap's peers tumbling during intraday trading on Tuesday. The shares of Facebook parent Meta FB Google parent Alphabet GOOG Twitter TWTR and Pinterest PINS experienced a total wipeout of $160 billion, according to Bloomberg.
According to an analyst at MKM Partners, the market downturn for tech stocks has brought up two key debates.
The first is whether Snap is facing greater macro headwinds than its peers.
We heard about a couple of Internet companies at an investor event, Fiverr FVRR, Neutral, $34 FV and Bumble BMBL, Not Rated, and neither seemed to flag incremental macro headwinds since their 1Q earnings reports, according to MKM Managing Partner Rohit Kulkarni.
He said that Snap is facing either Apple ATT or TikTok tracking pressures or Apple ATT app tracking pressures. This remains TBD in our opinion, and we hope to learn more over the next few weeks. In a note, Lloyd Walmsley, a UBS analyst, said the key question is to understand how much of this is merely a weakness that the company can bounce back from the competitive impact of TikTok further risk to multiple. Ultimately, Walmsley downplayed the risks for Snap earnings.
The company emphasized that it would miss the low end, but it doesn't sound like it would miss by a wide margin, he wrote. Simple math suggests that growth could be less than 10% in the quarter to get to below the low end of previous guidance, given a 30% start to the quarter. Walmsley said that UBS still sees an attractive risk reward skew in SNAP shares from here, though we acknowledge that it may be some time before the bull case plays out.