Snap Inc. (SNAP) shares dropped more than 40% on Tuesday (5/24), ending at US$12.79 - a significant breach from its IPO price of US$17 in 2017. This dive marked the social media giant’s biggest-ever single-day drop and additionally brought its equivalent market challengers down. Meta Platforms (FB) plunged nearly 8% from US$196.23 to US$181.23, Pinterest (PINS) tumbled more than 20% from US$22.95 to US$17.25, and Google parent Alphabet (GOOGL) decreased 5% from US$2,229.76 to US$2,119.40. On top of that, this news unsettled Twitter (TWTR) shares, which fell 35% from Musk’s original buyout offer price, US$54.20 per share. In addition, Snapchat shares drop shocked the tech industry, causing The Trade Desk (TTD) to fall by 18.51% from US$52.50 to US$42.78, Magnite (MGNI) to decrease by 13.15% from US$10.65 to US$9.25, and PubMatic (PUBM) to close down by 15.85% from US$21.83 to US$18.37. As a result of these shares decline, the market’s overall mood is majorly affected. The tech-laden Nasdaq was down approximately 2.5%, The S&P dipped nearly 1%. Snapchat’s CEO, Spiegel, wrote a note to employees that the drop was influenced by the unpredictable macro-environment deterioration, sooner than presumed. Consequently, this statement frightens investors and pulls them back from the social media market, which leads to a massive drop in share prices. Furthermore, according to Brian Wieser, global head of business intelligence at ad agency GroupM, valuations for social media shares are falling back down to earth after the businesses achieved exceptional growth last year as advertisers began to recover from the epidemic.
Snapchat’s CEO, Evan Spiegel, announced a profit warning for the company, signaling rough times ahead for the once-booming digital advertising business. Spiegel stated that Snapchat is expected to miss its initial revenue and adjusted earnings target for the current quarter. He also added that macroeconomic factors such as rising inflation, interest rate hikes, supply chain shortages, and the Russia-Ukraine war have negatively impacted businesses and consumers. Adding to that, social media companies have been battling with the negative impact on advertising revenue caused by Apple (AAPL) privacy measures for users of iPhones and other iOS-powered devices, which reduces the ability to accurately target specific consumers, thus reducing the amount companies are willing to spend for advertising on social media platforms. These concerns have caused several advertisers and brands to reconsider ad spending in the current quarter. The expanding popularity of TikTok and other burgeoning social media sites that younger users have been flocking to, such as Discord and Twitch, has increased competition in the industry. Investors in social media shares are concerned that advertisers may reduce marketing spending for various reasons. In battling this expected slower-than-expected revenue growth, Snapchat plans to manage expenses and cut back on unnecessary spending mainly by slowing down its employee hiring. Wells Fargo senior equity analyst, Brian Fitzgerald, stated in a Bloomberg report that a broad advertising market ‘recession’ is foreseen to be becoming even more apparent.
Reflecting back, a comparable situation occurred in February 2022, where Facebook's share price plummeted by more than 26%. The decline, which wiped over US$230 billion in market value, is the greatest one-day decline in American share market history. The stumble severely impacted the market's Q1 performance. In the same case as Snapchat, Facebook’s share decline was caused by slow revenue growth, affecting its rivals such as TikTok and Youtube. At the same time, advertisers also cut spending, and it influenced Facebook’s market challengers, Twitter, Snapchat, and Pinterest, to experience the same share crash. Despite the dip, the future outlook for social media shares remains optimistic, and firms are actively exploring new potential, such as the metaverse. With the notion of remote working growing increasingly popular, the metaverse might play a significant role. The price movement has compelled investors to reassess their positions on purchasing the drop. This scenario can be salvaged by continuing to innovate, but it comes with its own set of challenges; as Evan Spiegel stated at J.P. Morgan 50th Annual Global Technology, Media and Communications Conference on Monday (5/23), an abundance of problems occur, and need to be dealt with in the macro-environment today.
Sources:
CNBC
CNN
Reuters
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