Snap Has a Chilling Message that Sent Shock Waves Through the Digital Advertising Industry

Snap CEO Evan Spiegel had an unfortunate warning this week that led to more fleeing from social media stocks.

The CEO has warned of slowing growth in a note to employees that was made public on Monday.

Before Spiegel’s announcement, forecasts for the second quarter called for meager growth at best, and stock prices were getting hammered as a result.

He told employees and Wall Street that “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month.”

Snap, which had previously projected second-quarter growth of 20% to 25%, lost 43.1% of its market cap on Monday.

Other social media stocks also plummeted including Pinterest, which plunged 23.6%, Facebook parent Meta, which dropped 7.6%, Google, which lost 5% and Twitter, who sank 5.6%.

“Macro headwinds likely extend to all of digital advertising,” JMP Securities analysts wrote in a note following Snap’s disclosure. They added that brand budgets, and especially digital ones, “are more at risk of being reduced as companies tighten ad budgets,” while direct response ads, or those that encourage viewers to take immediate action, are “more connected to consumer spend, particularly eCommerce.”

According to analysts at Stifel, direct response campaigns “are likely starting to get hit a bit more from inflationary pressures,” and noted that Snap “is slightly more DR than brand currently.”

Analysts at Atlantic Equities remarked, “Coming just a month after issuing guidance this would seem to highlight the current rapid pace of change in underlying economic conditions, with this likely to have negative implications for online advertising peers and also the wider internet sector. Snap’s warning is clearly a negative for all of the ad-supported peers.”

Piper Sandler analysts agreed, writing that “this is more macro and industry-driven versus SNAP specific.”

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.