Opinion: Snap’s warning of a weaker outlook sends ripples through tech stocks

An unexpected warning from Snap Inc. CEO Evan Spiegel about the deteriorating economy swept through internet and social media stocks late Monday, possibly ruining the market’s comeback attempt from earlier in the day.

After the market closed with strong gains on Monday, Spiegel was speaking at a JP Morgan technology conference, and the company said in a regulatory filing that its second-quarter earnings would come in below previous estimates. At the conference, Spiegel said the economy had “definitely deteriorated further and faster” than Snap SNAP,
was expecting when it provided its guidance during its earnings call last month. He added that Snapchat’s parent company is slowing its hiring pace for the year and is looking at ways to cut costs.

Snap’s shares plunged more than 30% in after-hours trading, and shares of other internet and social media companies fell including: Alphabet Inc. GOOGL,
slipped 3.6%, Facebook parent Meta Platforms Inc. FB,
down 7%, Pinterest Inc. PINS,
down 12% and Twitter Inc. TWTR,
lost another 3.7% after a rollercoaster ride last week when Elon Musk claimed his deal to buy the company was on hold.

Spiegel said Snap, like many other companies, has been dealing with supply chain issues, inflation, interest rate concerns and the war in Ukraine. “There is a lot to do in the macro environment today, but we remain focused and really long-term and investing in that direction,” he said.

Snap’s comments could be indicative of further deterioration in the internet sector, with an overall slowdown in internet advertising as the macro economy slows. It is worth noting that last year, when the impact of Apple Inc.’s AAPL
Privacy changes were felt on platforms dependent on advertising revenue. It turns out that Snap and Facebook were the hardest hit by these changes.

This time, however, Snap could be the canary in the coal mine for the broader internet sector, which has been under a lot of pressure during the tech wreck so far this year. While the S&P 500 Index SPX,
While down about 17%, individual stocks have fallen much more sharply year-to-date: Alphabet is down nearly 23%, Meta is down 40%, Pinterest is down nearly 38%, while Twitter — briefly inflated by Musk’s $44-billion takeover bid — is now down about 12% this year.

A handful of tech giants have been talking about cutting spending and even some jobs amid the changing environment in recent weeks. Netflix Inc. NFLX,
which saw its first decline in subscriber growth since its inception, laid off 150 employees and cut costs; Robinhood Markets Inc. HOOD,
is shedding 9% of its workforce and others, like Uber Technologies Inc. UBER,
reduce costs in other ways for the time being.

Snap’s comments could also potentially affect the ongoing soap opera about Musk’s deal to buy Twitter for $54.20 a share. Musk wants the deal on hold as he claims Twitter’s spam/fake account count is inaccurate at around 5% and he believes it could be much higher. Twitter has countered that it expects the deal to close at the currently agreed price, but the market clearly does not expect the deal to close, if at all, at the current price, which now appears hugely inflated (Twitter shares closed Monday at $37.86 per share). Twitter shareholders are expected to approve the deal at the company’s annual meeting on Wednesday.

The market rebounded on Monday from a brief dip into bear territory last week, but this rally may be brief. Tech stocks have had a big boost in the last two years of the pandemic, but now they’ve become one of the biggest drags on the overall market. It’s not yet clear if Snap is some sort of trailblazer, but it could be another indicator of more bad news. Opinion: Snap’s warning of a weaker outlook sends ripples through tech stocks

Brian Lowry

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