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May 24, 2022

Social media stocks sink to erase US$135 billion on Snap warning

Social media stocks poised to shed over US$100B in market value following Snap's profit warning


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Social media stocks lost more than US$135 billion in market value Tuesday after Snap Inc.’s profit warning, adding to woes for a sector that is already reeling from stalling user growth and rate-hike fears. 

Shares in digital ad-dependent Snap tumbled 43 per cent, their biggest intraday decline ever to trade below its 2017 initial public offering price of US$17. The selloff erased almost US$16 billion in market value, and added to declines for peers including Facebook-owner Meta Platforms Inc., Google-owner Alphabet Inc., Twitter Inc. and Pinterest Inc.

The news spurred widespread selling across the advertising and ad-tech space. Among notable decliners, Trade Desk Inc. sank 19 per cent, fuboTV Inc. lost seven per cent, Magnite Inc. lost 13 per cent, LiveRamp Holdings Inc. slid eight per cent, Roku Inc. dropped 14 per cent, and Vizio Holding Corp. was down almost 10 per cent. In addition, Omnicom Group Inc. fell 8.4 per cent and Interpublic Group of Cos lost 4.9 per cent.

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“At this point, our sense is this is more macro and industry-driven versus Snap specific,” Piper Sandler analyst Tom Champion wrote in a note. 

Others on Wall Street agreed, with Citi analyst Ronald Josey saying “a slowing macro is likely impacting advertising results across the broader Internet sector, although we believe platforms more exposed to brand advertising—like Twitter, Google’s YouTube, and Pinterest—are likely experiencing a greater impact overall.”

The owner of the Snapchat app, which sends disappearing messages and adds special effects to videos, reported quarterly user growth in April that topped estimates. But with the company saying just a month later that it won’t meet prior forecasts for revenue and profit, analysts noted a rapid deterioration of the economic environment.

Snap and platforms like Facebook and Google are competing for advertising dollars at a challenging time. Spiraling inflation is putting pressure on companies and consumer spending, while recent privacy changes, such as Apple Inc.’s tracking restrictions, have slowed businesses that were booming during much of the pandemic.

User growth is another a big focus for social media firms as they vie 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 ever after saying that user additions stalled.

And broader concerns for the tech sector have also been hitting social media stocks, with the Federal Reserve’s path of rate hikes particularly weighing on technology stocks that are valued on future growth expectations.

Nasdaq 100 Index declined 2.2 per cent on Tuesday, erasing Monday’s advance for the gauge. The tech-heavy index is down 28 per cent this year, wiping out several hundred billions in value from the likes of Apple to other so-called growth peers like Netflix Inc.