Snap's shares plunge 30% as economic outlook 'deteriorates', takes down tech giants with it

Snap's shares dipped by more than 30% on Monday after an earnings warning. In a US Securities and Exchange Commission filing, Snap said since it issued guidance on 21 April this year, "the macroeconomic environment has deteriorated further and faster than anticipated". As a result, the company expects to report revenue and adjusted EBITDA "below the low end of [its] Q2 2022 guidance range".

This warning impacted the shares of other tech giants too. According to media reports including the Financial Times, shares for Meta and Alphabet fell 9% and 6% respectively. Meanwhile, Reuters reported a 2.2% dip in Amazon's shares. The adtech industry was also affected by Snap's warning as shares of the Trade Desk dipped 18.51%, CNBC said. Magnite's and PubMatic's shares slid 13.15% and 15.85% respectively.

Nonetheless, Snap said in the filing that it remains excited about the long-term opportunity to grow its business. "Our community continues to grow, and we continue to see strong engagement across Snapchat and continue to see significant opportunities to grow our average revenue per user over the long term," the company added in the filing.

CFO Derek Andersen said during its Q1 2022 earnings call that in the latter portion of Q1, advertisers in a wider variety of industry groups reported concerns related to the macro operating environment, including continued supply chain disruptions, rising input costs, economic concerns due to rising interest rates, and concerns related to geopolitical risks stemming from the war in Ukraine.

While the impact of these headwinds was felt broadly, Andersen said its brand advertising business grew at a relatively slower rate of 26% year-over-year in Q1, as new headwinds built on top of supply chain and labour supply headwinds already impacting a subset of industry sectors coming into Q2.

Separately, Snap CEO Evan Spiegel also recently warned of hiring slow down in an internal memo. Spiegel explained in the memo that like many companies, Snap continues to experience "rising inflation and interest rates, supply chain shortages and labour disruptions, platform policy changes, the impact of the war in Ukraine, and more", Bloomberg reported.

Snap plans to "reprioritise its investments" and while it will continue to invest across its business priorities, Spiegel said the company will do so at a slower pace as a result of the operating environment, Bloomberg said.

One of these includes slowing down its hiring for unopened roles for the rest of 2022, while pushing some planned hiring to next year. According to Snap's chief, it expects to bring on board more than 500 new employees between now until the end of 2022, forming approximately 10% company-wide headcount growth over the next few months, Bloomberg said. At the same time, Snap is also evaluating the rest of its 2022 budgets and leaders have been requested to review spending to find additional cost savings.

Snap grew its revenue 38% year-on-year to hit US$1.06 billion during the first quarter of 2022 ended 31 March. Average revenue per user jumped 17% year-over-year to US$3.20 during the first quarter. However, it reported a net loss of US$360 million, compared to US$287 million during the same period last year.

Photo courtesy: 123RF

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