Fitting the word exactly in both impact and the event itself, Snap Inc. (SNAP) had a “monumentous” fall from grace. The stock drowned others along with itself when a filing from the company revealed its concerns over the recently provided 2022 outlook. While the outlook was already below the expectations, the filing said that the company now thinks the upcoming results to fall at the lower end of the guidance. The concerning news not only led the stock to a record tumble but also impacted many others in the social media and online advertising sectors. Joining SNAP in the downtrend were giants like Alphabet, Meta, Twitter, and many others. The company’s dreadful outlook caused the social media stocks to shed over $135 billion in market value in just one day (Tuesday).
The profit warning also highlighted concerns for the broader advertising market as the social media company’s woes signal a larger slowdown. Hence, it has sparked a debate over the future of the online-ad market, as the economic and geopolitical instability has many cutting down on marketing/advertising to reserve capital. Many concerning questions are being raised now regarding the larger outlook of the industry that once boomed in the peak pandemic days.
But given the wider macroeconomic and geopolitical situation, what does it mean for the industry and the stock itself? Let’s have a look at the factors at play.
Down nearly 73% in just 2022, SNAP has lost roughly 79% in the past twelve months. Following the dreary events, the stock closed trading at $12.79 a share yesterday, well below its IPO price of $17 per share in 2017. A decline of over 43% in the session caused it to register its new 52-week low of $12.55.
However, in the pre-market today, the stock is trading in the green as hopeful investors buy the dip. At the time of writing, the stock was valued at $12.94 a share with a slight uptick of just 1.17%.
The Profit Warning
In a regulatory filing late on Monday, the social media company warned that the prevailing uncertainty has spiked beyond expectations. According to the company, the macroeconomic environment’s deterioration has happened at a much faster pace than expected since it provided the recent guidance. Thus, the panic-filled situation has the company rein in both its revenue and profit guidance for the second quarter of 2022.
It was only near the end of April that the company issued its Q2, 2022 guidance with revenue growth of 20%-25% YOY. The guidance had the adjusted EBITDA estimated to break even and at $50 million for the quarter. But the growing concerns regarding the wider instability have the company now aiming the outlook at the lower end of the guidance. However, the company said that it remains optimistic about SNAP’s long-term growth with solid ARPU improvement.
The Broader Situation
Since inflation is now at an all-time high in roughly 40 years, companies are struggling with increased costs and reduced profits. This has forced many to cut down on their advertising and marketing spending to help reserve capital. Furthermore, many have suspended all their marketing and media activities in Russia and Ukraine due to the war.
So, what’s the Takeaway?
While the numerous threats and added woes to the social media and online-ads market are raising questions over its once largely bullish outlook, the long-term expectations remain the same. The headwinds appear to be only for the short term and the market is expected to continue booming as the world now largely depends on the digitalized form of everything. Social media and online advertising are the new norms and the prior means of marketing are becoming obsolete.
To cope with the economic disruptions, SNAP is working tirelessly and continues to invest despite the unstable environment. The company has been launching several new augmented reality products and services, along with controlling costs. It is trying to shift from just being a social media platform and diversifying its revenue streams. The company also said in a recent presentation that it plans to shrink hiring and reduce expenses in the near term while improving productivity.
Following the recent profit warning, many experts did cut back on their price target for SNAP. However, the stock still maintains a “hold” rating and even “buy” from some. Given the long-term bullish outlook of the industry and the company, the current beaten-down price does present a good buying opportunity.