Snap stock crash: 'Highly unlikely that the weakness is isolated,' Jefferies says
Following a grim profit warning Monday from Snap Inc. (SNAP), investors have another excuse to shed tech shares.
Snap stock plunged more than 40% on Tuesday — falling below the platform's initial public offering (IPO) price of $17 — after Snap Inc. CEO Evan Spiegel warned employees that the company will miss its targets for revenue and adjusted earnings in the current quarter.
The collapse in Snap shares has signaled to some analysts on Wall Street that softness could be expected from other digital advertising companies.
"It is highly unlikely that the weakness is isolated to SNAP, as we expect macro conditions to impact all digital ad names, including FB, GOOG, TWTR, [PubMatic], [The Trade Desk], and [Integral Ad Science Holding Corp]," Brent Thill, an equity analyst at Jefferies, wrote in a note to clients.
When reporting first-quarter earnings last month, Snap expected revenue growth to be between 20% and 25% and adjusted EBITDA to be between breakeven and $50 million.
But the company walked back that guidance in an SEC filing on Monday: "Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated," the filing stated. "As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range."
The news hit social media stocks hard, sending Snap's peers tumbling during intraday trading on Tuesday. Shares of Facebook parent Meta (FB), Google parent Alphabet (GOOG), Twitter (TWTR), and Pinterest (PINS) experienced a collective $160 billion wipeout, Bloomberg reported.
'The key question' for Snap
The market downturn for tech stocks has brought up two key debates, according to an analyst at MKM Partners.
The first is whether Snap is facing greater macro headwinds than its peers.
"We listened to a couple of other Internet companies at an investor event, Fiverr (FVRR, Neutral, $34FV) and Bumble (BMBL, Not Rated), and neither seemed to flag incremental macro headwinds since their 1Q earnings reports," MKM Managing Partner Rohit Kulkarni wrote.
Second is whether Snap is "facing incremental TikTok and/or Apple ATT [app tracking transparency] pressures," he added. "This remains TBD in our opinion, and we hope to learn more over the next few weeks."
UBS analyst Lloyd Walmsley echoed these sentiments in a note: "The key question, in our minds, is to understand how much of this is merely macro weakness (which the company can ultimately bounce back from) versus the competitive impact from TikTok (further risk to multiple)."
Ultimately, however, Walmsley downplayed the risks for Snap earnings.
"The [company] emphasized it 'likely' would miss the low end but it doesn't sound like it would miss by a wide margin," he wrote. "Simple math suggests that growth could exit the quarter below 10% [year-over-year] to get to below the low end of previous guidance, given a +30% start to the quarter."
Walmsley added that UBS still sees "an attractive risk/reward skew in SNAP shares from here, though we acknowledge it may be some time before the bull case plays out."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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