Snap Stock Tumbles 43%, Takes Tech Sector Down With It – Should You Buy, Sell or Hold?

Mandatory Credit: Photo by Mateusz Slodkowski/SOPA Images/Shutterstock (12786441ab)In this photo illustration a Snapchat logo seen displayed on a smartphone.
Mateusz Slodkowski/SOPA Images/Shutterstock / Mateusz Slodkowski/SOPA Images/Shutterstock

Snap CEO Evan Spiegel said the company was revising its guidance lower due to further deteriorating macroeconomic events, which sent the stock tumbling 43% on May 24. The company also said it would slow hiring.

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The tech stock’s crash took down with it the sector at large. Alphabet closed down 4.95% after being down 01% in pre-market trading on May 25; Meta closed down 7.6% and was down 0.4% on May 25; and Twitter — which was already suffering thanks to Elon Musk — went down 5.5%, but was up 0.5% in pre-market trading on May 25.

Snap was down 0.7% in pre-market trading on May 25.

Spiegel said that “since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range,” according to an 8K filing with the Securities and Exchange Commission (SEC). In a memo to employees, he added that the company will slow its pace of hiring for unopened roles for the remainder of the year, as well as push some planned hiring into next year, according to Bloomberg.

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Edward Moya, senior market analyst, The Americas OANDA, wrote in a note sent to GOBankingRates that Snap shares plunged after the social media giant cut its forecast over concerns with a rising macro operating environment, including continued supply chain disruptions, rising input costs, economic concerns due to rising interest rates and concerns related to geopolitical risks stemming from the Russia-Ukraine war.

“Snap’s downbeat outlook dragged all social media and advertising stocks lower as it appears to be clear that most companies will not avoid the troubling macro backdrop,” Moya wrote.

Snap has already warned of the many challenges it was faced with and that these would continue. In an earnings call on April 22, CFO Derek Andersen said that “the headwinds that impacted our business in Q1 have persisted into Q2, and we believe the impact of the war on Ukraine has been significant, and this impact is particularly difficult to predict going forward.”

“As a result, we’re concerned we could see additional campaign positives or advertiser budget reductions in the future. The comparisons, as I noted are also getting tougher. As a reminder, our top-line growth accelerated by 50 percentage points in Q2 of last year to reach 115%,” he said according to a transcript of the call.

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Following yesterday’s news, CFRA Research slashed its 12-month target to $18 from $40.

“SNAP blames rising inflation/interest rates, supply chain shortages, labor disruptions, iOS changes, and Russia/Ukraine,” Angelo Zino, CFRA Research senior industry analyst, wrote in a note sent to GOBankingRates. “Given slowing growth, we see greater focus on managing operating expenses, with headcount to rise by only 10% the rest of the year vs. a 41% boost YTD.”

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Zino added that although SNAP commands less than a 2% share of the U.S. digital ad market, “we find the sharp deceleration in growth to be worrisome for the social media space.”

CFRA said it maintained its Hold opinion on Snap. 

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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