Snap Inc's profit warning sends ripples through social media stocks

Digital Turbine

24/05/2022 12:52

May 24 (Reuters) - Snap Inc's  SNAP.N  shares slumped 30%
before the bell on Tuesday after a profit warning from the
social media company signaled tough times ahead for the
once-booming industry, sparking a sector-wide selloff.
    The owner of Snapchat was on course erase about $10 billion
from its market value, while larger players Meta Platforms
 FB.O  and Google-parent Alphabet Inc  GOOGL.O  were both down
more than 4%.
    Snap said on Monday it expected to miss quarterly revenue
and profits targets that it set just a month earlier, citing a
faster-than-expected downturn in the economy.  urn:newsml:reuters.com:*:nL2N2XF2NL
    Like companies across sectors, Snap faces pressure from
inflation, labor shortages and rising interest rates that have
raised fears of a global economic slowdown.
    "This suggests that in just a month, the environment has
aggressively deteriorated further. We see no real reason to not
take Snap's negative pre-release at face value," Evercore ISI
analyst Mark Mahaney said.
    While the weakening economy is the main factor, competition
from TikTok and a shift in ad budgets to Google and Facebook are
also hurting the company, he added.
    Analysts also said Snap's outlook for core profit suggested
expenses will outpace revenue growth in the period, given
headcount was up 52% in the prior quarter.
    While demand for online advertising picked up during the
pandemic when consumers spent more time on social media, changes
to Apple's iOS operating system have dulled the industry's
growth prospects .
    The warning from Snap also weighed on the wider market, with
futures tracking Nasdaq 100 index  NQcv1  down nearly 2%.  .N 
    A Bank of America fund managers survey for May indicated
investors are becoming increasingly bearish on tech stocks, a
stark reversal to a bullish trend in the past 14 years.
Allocation to tech has also dropped month over month by 23
percentage points, according to the survey.
    

 (Reporting by Medha Singh and Nivedita Balu in Bengaluru;
Editing by Aditya Soni 
)
 ((Medha.Singh@thomsonreuters.com; +91 80 6210 0592; Twitter: https://twitter.com/medhasinghs;))