An unexpected warning of the deteriorating economy from the CEO of Snap Inc. Evan SPIEGEL spread on the Internet and social media late Monday, potentially thwarting an attempt to return to the market earlier in the day.
After the market closed with strong profits on Monday, Spiegel spoke at a technology conference of JP Morgan and the company said in regulatory documentation that its profits for the second quarter will be below its previous estimates. Speaking at the conference, Spiegel said the economy “definitely deteriorated further and faster” than Snap SNAP, -40.40% expected when it made its forecast during last month’s earnings call. He added that Snapchat’s parent is slowing the pace of hiring for the year and looking for ways to cut costs.
Shares of Snap fell more than 30% in after-hours trading, while shares of other Internet and social media companies fell along with: Alphabet Inc. GOOGL, + 2.37% down 3.6%, Facebook parent Meta Platforms Inc. FB, + 1.39% down 7%, Pinterest Inc. PINS, -1.40% fell 12%, and Twitter Inc. TWTR, -1.12% lost an additional 3.7% after traveling by train last week when Elon Musk said his deal to buy the company was withheld.
Spiegel said Snap, like many other companies, was dealing with supply chain problems, inflation, interest rate concerns and the war in Ukraine. “There is a lot to deal with today in the macro environment, but we stay focused and really long-term and invest through it,” he said.
Snap’s comments could be an indication of a further deterioration in the Internet sector, with an overall slowdown in online advertising as the macroeconomy slows. It is worth noting that last year, when the influence of Apple Inc.’s AAPL, + 4.01% change in privacy was felt on platforms that depend on advertising revenue, it turned out that Snap and Facebook are the strongest affected by these changes.
This time, however, Snap could be the canary in the coal mine for the wider Internet sector, which has been under a lot of pressure during the technological wreck so far this year. While the S&P 500 SPX index, + 1.86% is down about 17%, individual stocks have fallen much more strongly on a year-to-date basis: Alphabet is down nearly 23%, Meta is down 40%, Pinterest is down by nearly 38 percent, while Twitter – briefly boosted by Musk’s $ 44 billion takeover bid – has now fallen about 12 percent this year.
A handful of technology giants have talked in recent weeks about cutting costs and even some jobs amid a changing environment. Netflix Inc. NFLX, + 0.58%, which marked the first drop in subscriber growth since its early days, laid off 150 staff and reduced costs; Robinhood Markets Inc. HOOD, -0.20% cuts 9% of its workforce, and others, such as Uber Technologies Inc. UBER, + 1.84%, is reducing costs in other ways so far.
Snap’s comments could also have an impact on the ongoing soap opera about Musk’s deal to buy Twitter for $ 54.20 a share. Musk wants the deal postponed as he claims that the number of spam / fake Twitter accounts is inaccurate at around 5% and believes it could be much higher. Twitter has said it expects the deal to move to the current agreed price, but the market is clearly not expecting the deal to be completed, if at all, at the current price, which now looks extremely high (Twitter shares closed at $ 37.86 per share on Monday) . Twitter shareholders are expected to approve the deal on Wednesday at the company’s annual meeting.
The market recovered on Monday from a brief dip in sword territory last week, but this rally may be short. Technology stocks have risen significantly in the last two years of the pandemic, but have now become one of the biggest difficulties in the market as a whole. It’s not yet clear if Snap is some kind of commentator, but it could be another indicator of more bad news.
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