Social media stocks were anyways having a dismal run in 2022 and Facebook parent Meta Platforms has lost almost half of its market cap in the year. Social media stocks look set to add to their 2022 losses as markets give a thumbs down to Snap and Twitter earnings.
Snap released its second-quarter earnings yesterday after the close of markets. It posted revenues of $1.11 billion in the quarter which was below the $1.14 billion that analysts were expecting. It posted an adjusted loss per share of 2 cents which was also higher than the 1 cent per share loss that analysts were expecting. The earnings don’t look all that terrible and are only slightly worse than expected.
Snap stock is trading over 30% lower in US premarket price action today and is drifting towards a new 52-week low. The stock is anyways trading below its 2017 IPO price and looks set to extend the drawdown even further with today’s crash.
What is concerning for the markets is the company’s commentary on the outlook. It did not provide guidance for the third quarter saying “forward-looking visibility remains incredibly challenging.” It however said that its revenues so far in the quarter are flat on a YoY basis. Analysts were expecting the company to post an 18% YoY increase in its third-quarter earnings.
In its shareholder letter, Snap said “We are not satisfied with the results we are delivering, regardless of the current headwinds.” It added, “In certain high-growth sectors, businesses are reassessing investment levels amid the rising cost of capital, which is further reflected in campaign budgets and the level of bids per action.” It also added that it is slowing the hiring and cutting down on expenses.
Layoffs Mount in Corporate America amid the Slowdown
Snap has previously been a popular stock among Reddit traders. However, many Reddit stocks have crashed in 2022. Amazon also announced a cut in its workforce during the Q1 2022 earnings call. The company is now acquiring One Medical which would make its foray into the telemedicine industry. Amazon already has a pharmacy business. While the US economy continues to add jobs, there has been a hiring slowdown in the tech sector.
If Snap’s earnings were not bad enough for social media stocks, Twitter also missed earnings estimates. The company blamed the poor ad market and Elon Musk’s flip-flops on acquiring the company for the slowdown. Musk has backed out of the deal to acquire Twitter. Previously he had said that he was looking to move Twitter to a subscription model. Twitter’s board had initially opposed Musk’s acquisition offer but eventually relented.
Like Snap, Twitter also did not provide a guidance, but for a different reason. It said, “Given the pending acquisition of Twitter by an affiliate of Elon Musk, we will not host an earnings conference call, issue a shareholder letter, or provide financial guidance in conjunction with our second quarter 2022 earnings release.”
Snap and Twitter Trigger a Sell-Off in Social Media Stocks
The earnings of Snap and Twitter have triggered a sell-off in other social media stocks also. Notably, in May also, Snap triggered a sell-off in social media stocks after it warned that it would not be able to meet its guidance for the quarter. Social media companies are grappling with intense scrutiny of data privacy policies. Apple’s new iPhone rules have also hurt the sector and Meta Platforms estimates that it would lose $10 billion in revenues due to the iPhone privacy rules.
To make things worse, there has been a slowdown in the ad market amid the slowing economy. The continued geopolitical tensions and recession fears are also making advertisers apprehensive.
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