An unexpected warning about the deteriorating economy by Snap Inc. Chief Executive Evan Spiegel rippled through internet and social-media stocks late Monday, potentially ruining the market’s comeback attempt from earlier in the day.
After the market closed with strong gains Monday, Spiegel spoke at a JP Morgan technology conference, and the company stated in a regulatory filing that its second-quarter earnings would come in below its prior estimates. At the conference, Spiegel said the economy has ”definitely deteriorated further and faster” than Snap
had expected when it gave its forecast during its earnings call last month. He added that the Snapchat parent is slowing its hiring pace for the year and looking for ways to cut costs.
Shares of Snap tumbled more than 30% in after-hours trading, and the stocks of other internet and social-media companies fell along with it: Alphabet Inc.
slipped 3.6%, Facebook parent Meta Platforms Inc.
tumbled 7%, Pinterest Inc.
fell 12%, and Twitter Inc.
lost an additional 3.7%, after a roller-coaster ride last week as Elon Musk claimed his deal to buy the company was on hold.
Spiegel said Snap, like many other businesses, was dealing with supply-chain issues, inflation, concerns about interest rates and the war in Ukraine. “There’s a lot to deal with in the macro environment today, but we’re staying focused and really on the long term and investing through it,” he said.
The comments by Snap could be an indication of further deterioration in the internet sector, with an overall internet advertising slowdown as the macro economy slows. It’s worth noting that last year, when the impact of Apple Inc.’s
privacy changes was felt on platforms that depended on ad revenue, it turned out that Snap and Facebook were the hardest hit by those changes.
This time however, Snap could be the canary in the coal mine for the broader internet sector, which has been under big pressure during the tech wreck so far this year. While the S&P 500 Index
is down about 17%, individual stocks have fallen much harder on a year-to-date basis: Alphabet is off almost 23%, Meta has fallen 40%, Pinterest is down nearly 38%, while Twitter — briefly pumped up by Musk’s $44 billion takeover bid — is now down about 12% this year.
A handful of tech giants have talked in recent weeks about cutting spending and even some jobs amid the changing environment. Netflix Inc.
which saw the first decline in subscriber growth since its early days, is laying off 150 employees and cutting costs; Robinhood Markets Inc.
is cutting 9% of its workforce and others, like Uber Technologies Inc.
are slashing costs in other ways for now.
Snap’s comments could conceivably also have an impact on the ongoing soap opera over Musk’s deal to buy Twitter for $54.20 a share. Musk wants the deal to be put on hold, as he claims Twitter’s count of spam/fake accounts is inaccurate at around 5%, and he believes it could be much higher. Twitter has countered that it expects the deal to go through at the currently agreed price, but the market clearly does not expect the deal to be completed, if at all, at the current price, which now seems hugely inflated (Twitter shares closed Monday at $37.86 a share). Twitter shareholders are expected to approve the deal Wednesday at the company’s annual meeting.
The market bounced back Monday from a brief dip into bear territory last week, but that rally could be brief. Tech stocks have had a big run-up over the past two years of the pandemic, but now they have become of one of the biggest drags on the overall market. It’s not clear yet whether Snap is any kind of bellwether, but it could be another indicator of more bad news to come.