Snap’s shares plunged more than 40% today after the social media company warned it would miss its own revenue forecast yesterday—dragging down other social media stocks with it.
The stock price for Snapchat’s parent company fell below $14 a share in midday trading, a dramatic decline from its $80-plus share price last year. Meta Platforms, parent company of Facebook, saw shares fall almost 9% on Tuesday while Twitter dropped 4%, Alphabet declined 6%, and Pinterest sank 22%.
Much of the concern centers around fears of an advertising slowdown. On Monday, Snap CEO Evan Spiegel said at a J.P. Morgan Chase & Co. conference that macro conditions have “deteriorated further and faster than expected.”
“There will be a shakeout,” says Mark DiMassimo, founder and creative chief of DiGo, a New York advertising agency. “The cycle is turning and you’d better have a solid place in the life of enough users and have a really solid argument for advertisers.”
Spiegel cited several factors, including supply-chain issues, inflation, concerns about interest rates, the war in Ukraine, and uncertainties around Apple’s privacy changes. The stock price for digital advertising company Omnicom Group fell 8.75% today, and an Omnicom executive said at the J.P. Morgan conference that the environment for advertising was “challenging.”
In a research note, analysts at KeyBanc suggested that Snap’s issues may be unique to Snap, noting that its younger user base could be more sensitive to inflation than those on other social media platforms.
DiMassimo agrees, saying that most of the advertisers on Snap are packaged goods, beauty, or fashion brands. And if they’re dealing with supply-chain issues, then it’s reasonable that companies will cut back on advertising. Yet he remains bullish on Snap.
“Snap has done a pretty good job of making a place for itself,” he says. “It’s a fragile moment, and bad news is punished pretty brutally in the market.”
For Snapchat, the other elephant in the room is TikTok, which competes for the base of younger users. “Forrester data shows that between 2021 and 2022, the only major social media platform that saw material gains in weekly usage among U.S. online adults is TikTok—from 18% in 2021 to 23% this year,” according to market research company Forrester. “Facebook dropped 3 percentage points and Snapchat and Instagram remained relatively flat year-over-year across all online adults.”
Last month, Jefferies analyst Brent Thill said his investors were shifting away from technology investments. “Everyone is concerned about the fundamentals,” Thill told CNBC in April. “And most CFOs talk more cautiously about the macroeconomy. Everything is starting to slow.”
He expressed concern about a downturn in the technology sector and a potential “pandemic hangover.” Investors are paying attention to whether people are watching more videos and ordering more hoodies and Zoom equipment or whether they’re traveling or going out to restaurants.
DiMassimo says his advertisers are still eager to advertise on social media, but he is seeing signs of mini-crashes and recession-like behavior, including mortgage companies scaling back advertising and, more recently tech startups, which are beginning to reserve cash. “Advertising is one of the first things to be cut,” he says.
The weakened tech market is indicative of broader concerns about a coming recession. Last week, Moody’s chief economist Mark Zandi questioned whether we were on a road to a recession, citing uncomfortably high risks and rising interest rates as factors to watch. “Hand-wringing over prospects for a U.S. recession beginning in the next year or two has become increasingly fevered,” he wrote.
Susan Sterne, president and chief economist at Economic Analysis Associates, has said that a recession could be fairly normal for the first time since the 1990s. People are spending, but they’re not overextending themselves like they did in 2008.
“The type of recession we’re looking at is not like a serious, massive downturn in consumer spending across the board,” Brett Ryan, a senior U.S. economist at Deutsche Bank, told Business Insider.
The majority of analysts have issued buy ratings on Snap, anticipating an upside potential of the stock price, and Snap CEO Spiegel said the company is staying focused and investing for the long term, which includes augmented reality and the metaverse.