Instant Warning Shocks Digital Media Stocks; Facebook, Pinterest drop

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Evan Spiegel, CEO and co-founder of Snap Inc.

Adam Galica | CNBC

Social media companies were already having a tough year due to reduced digital ad spend caused by rising inflation, supply chain challenges and the war in Ukraine. Forecasts for the second quarter called for weak growth at best, and stock prices were hammered.

That was before Snap CEO Evan Spiegel warned late Monday of an environment that has worsened since his company reported quarterly results in April when forecasts were already disappointing.

By telling employees and Wall Street that “the macroeconomic environment has deteriorated further and faster than we anticipated when we released our quarterly guidance last month,” Spiegel sent a shock through the industry. of digital advertising and sent investors running for exits.

Snap, which had previously forecast 20% to 25% growth in the second quarter, lost 40% of its market capitalization on Monday. Beyond that, Pinterest plunged 23%, Facebook parent Meta fell 8%, Google lost 6% and Twitter sank almost 4%.

“Macro headwinds likely extend across digital advertising,” analysts at JMP Securities wrote in a note following Snap’s disclosure. They added that brand budgets, and especially digital budgets, “were more likely to be squeezed as companies tighten advertising budgets,” while direct-response ads, or those that encourage viewers to take action immediately, are “more related to consumer spending, especially e-commerce.”

Stifel analysts wrote that direct response campaigns are “probably starting to get a bit more impacted by inflationary pressures” and noted that Snap “is slightly more DR than the brand currently.”

The outsized impact of Snap’s comment is surprising given the size of the company. It generates a tiny fraction of the amount of money in a quarter that Facebook and Google earn. And Facebook already warned investors last month that second-quarter revenue could fall from a year earlier, a stark admission from a company that had never seen anything less than growth at double digits before this year.

But analysts at Atlantic Equities see justified concern in the wider market following Spiegel’s letter.

“Just a month after the release of the forecast, this would appear to highlight the current rapid pace of change in underlying economic conditions, which is likely to have negative implications for online advertising peers and also for the Internet sector at large,” the Atlantic Equities analysts wrote. “Snap’s warning is clearly negative for all ad-supported peers.”

Piper Sandler analysts agreed, writing that “it’s more macro and industry-focused than SNAP-specific.”

The fallout has been so significant that it has also hammered ad tech platforms, which connect brands to publishers and ad-supported sites and apps. The Trade Desk fell 20% on Monday, while Pubmatic slipped 15% and Digital Turbine fell 13%. They have each lost at least 45% of their value this year, compared to a 28% drop for the Nasdaq and a 28% drop for the S&P 500.

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