Social Media Platforms Twitter and Snap’s Q2 results disappointed
Twitter (NYSE:TWTR) attributed the surprise drop in quarterly revenue to its ongoing battle to close its $44 billion acquisition by Elon Musk. The shares of the microblogging site were slightly higher.
Snap (NYSE:SNAP) said Thursday that advertisers cut spending amid rising interest rates and soaring inflation, with some struggling with labor shortages and supply chain disruptions.
“If you want proof that companies are nervous about the economic outlook, just look at how media platforms and marketing agencies are bemoaning a tougher advertising market,” Russ Mould, AJ Bell investment director, said.
Investors are preparing for the slowest global revenue growth in the social media industry’s history as Apple Inc’s (NASDAQ:AAPL) privacy concerns further alter the cloud outlook.
Shares of Snap fell nearly 40% and were the most traded on U.S. exchanges. The company said it was looking for new sources of revenue to expand.
The losses mark the second selloff triggered by Snapchat’s (NYSE:SNAP) owner in two months, as its results become a barometer for investors trying to determine how economic uncertainty affects ad spending. There are growing signs that tech companies are preparing for a recession with some pullback on hiring. At the same time, Meta (NASDAQ:META) has lost about half its value this year after disappointing earnings forecasts.
Analysts slashed their price target on Snap
Wall Street analysts reacted quickly, with at least nine brokerages slashing their recommendations on Snap (NYSE:SNAP) shares while many others cut their price targets. The stock has fallen almost 80% this year, but the 12-month average price target has lost more than 72% over the same period.
JPMorgan (NYSE:JPM) analyst Doug Anmuth noted that TikTok’s strong engagement and rapid monetization growth have a massive impact on Snap’s business. He downgraded his rating on the stock to underweight and cut the price target to a Wall Street low of US$9.
Ad spending is deteriorating
Snap (NYSE:SNAP) hasn’t released financial guidance for the third quarter, except to say that revenue so far in the period is roughly flat compared to a year ago. Management also reiterated that it expects a “substantially reduced rate of hiring,” echoing Apple Inc.’s (NASDAQ:AAPL) and others’ plans.
The Snapchat owner’s weak quarterly outlook confirms fears of deteriorating ad spending, RBC Capital Markets said in a note.
“Unfortunately for Snap and the digital ad sector, we believe there are signs of further ad spending cuts.”
Vital Knowledge called the results from Snap and hard drive maker Seagate Technology Holdings Plc (NASDAQ:STX) “awful” and “ugly.” Already battered tech stocks could face more pressure as the earnings season heats up next week.
Meta (NASDAQ:META) and Alphabet (NASDAQ:GOOGL) are expected to report quarterly results next week, while Pinterest (NYSE:PINS) is expected to report second-quarter results on August 1.
Of the 106 S&P 500 companies that have reported earnings so far, 75.5% have exceeded expectations. Analysts now expect S&P 500 year-over-year earnings to rise 6.2% in the second quarter, down from the 6.8% estimate at the start of the three-month period, according to Refinitiv data.
Another hike in interest rates expected next week
Investors are focusing on the Federal Reserve meeting and second-quarter U.S. gross domestic product data next week for clues about the economy’s health. While the US central bank is expected to raise interest rates by 75 basis points to curb runaway inflation, GDP data is expected to turn negative again.
Meanwhile, a survey on Friday showed that business activity in the United States contracted for the first time in almost two years in July, heightening concerns about an economy dragged down by high inflation, rising interest rates and falling consumer confidence.
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