Snap’s gloomy outlook warns of wider tech troubles

The social media group’s downbeat guidance led to a share price meltdown and pushed other tech giants lower on fears of a wider slowdown and consumer pullback.

Snap co-founder and CEO Evan Spiegel says the business will be looking for savings. Picture: Michael Nagle/Bloomberg

Snap’s surprise disclosure that its second-quarter revenue and profit will be lower than expected sent its shares plunging and sparked debate over whether the social media company’s woes signal a broader slowdown in the online advertising market.

During a presentation at an investment conference, Snap chief executive Evan Spiegel said “the macroeconomic environment has definitely deteriorated further and faster than we expected.”

In a filing, Snap said it would miss the low end of its target for 20 per cent to 25 per cent year-over-year revenue growth, and would fail to reach its target for adjusted operating earnings.

Snap shares fell more than 40 per cent on the update and triggered a widespread tech fallout.

Some Wall Street analysts interpreted the results as an ominous sign for ad spending across the board.

Jefferies analyst Brent Thill said the downgrade in guidance “is indicative of a rapidly deteriorating macro environment that will likely impact the whole ad industry.”

Morgan Stanley analyst Brian Nowak likewise said he expected “all online ad platforms to feel some impact of a significant consumer pullback.”

Other analysts said Snap is a unique case, because the company’s growth expectations have been more aggressive than those of peers.

“We may not see as significant estimates revisions for other names,” Raymond James analysts said in a note.

Snap’s warning weighed on tech stocks and companies throughout the ad world.

Shares in Facebook parent Meta Platforms and Google parent Alphabet were down 9 per cent and 6 per cent, respectively.

Mr Spiegel, who is married to Australian-born model Miranda Kerr, said the company would be “continuing to invest across our business priorities.

Shares of ad agency holding companies Omnicom Group and Interpublic Group of Cos each fell about 9 per cent, while online-ad middleman Trade Desk dropped 20 per cent.

Inflation, supply-chain shortages and fears of a wider economic downturn could all play into companies’ decisions on how much to spend on advertising, analysts say.

In a memo to staff, Mr. Spiegel said higher interest rates, labour disruptions and the impact of the war in Ukraine were also weighing on its business.

Brian Wieser, global president of business intelligence at ad-buying company GroupM, said it is still unclear how economic uncertainty is shaking out in the ad market.

Companies in certain sectors may slash ad spending in this environment, while those in other categories will actually raise spending.

VF Corp, owner of apparel brands such as The North Face and Timberland, said on Thursday it expected to increase the proportion of sales it allocates to ad spending.

Mr Wieser noted that Snap, like other big digital-ad players, was due for some deceleration after a period of superfast growth that may have been unsustainable.

In addition to the macroeconomic conditions, most online companies are still grappling with the effects of Apple’s changes to its ad-tracking systems, which has limited how platforms collect data and measure the performance of marketing campaigns.

Analysts said it was unclear how much Snap’s revised guidance was due to the continued fallout from those changes.

Following the lead of Meta and other tech companies, Snap also on Monday said it would slow hiring and push some of its planned staff additions to next year, as well as evaluate the remainder of its 2022 budget to look for additional cost savings.

In his memo to staff, Mr Spiegel, who is married to Australian-born model Miranda Kerr, said the company would be “continuing to invest across our business priorities, but in many cases doing so at a slower pace than we had planned given the operating environment.”

Snap shares have often been volatile. The price dipped below $5 in late 2018, only to roar back over $80 during the pandemic, as young people flocked to its flagship app Snapchat.