Snap sets off alarm bells in ad-reliant social media sector

(Reuters) – Snap Inc (NYSE:) shares sank nearly 30% in premarket trading on Friday, after the company’s forecast of zero revenue pointed to more pain ahead for a social media sector heavily dependant on digital advertising.

YouTube-parent Alphabet (NASDAQ:) Inc, Facebook-parent Meta Platform Inc and Pinterest (NYSE:) Inc fell between 2% and 7%. Twitter Inc (NYSE:) slid 8%, also dragged by fears of security reviews of billionaire Elon Musk’s takeover bid.

Analysts rushed to cut their price target on the stock, with Morgan Stanley (NYSE:) taking it to a Wall Street low of $7, below the $7.74 the stock was trading at.

GRAPHIC – Social media stocks slip as advertiser spending slows

The digital ad space has suffered as brands have cut marketing and ad budgets in response to declining consumer demand. Snap’s warning exacerbated the fears.

So far this year, digital ad companies have together lost roughly $1 trillion in value, hit by intense competition from TikTok and challenges from Apple Inc (NASDAQ:)’s privacy changes to its iOS platform that allows users to opt out of data tracking.

Snap reported its slowest revenue growth as a public company for the latest quarter on Thursday, and forecast no revenue growth for the typically busy holiday quarter.

GRAPHIC – Snap warns of more trouble ahead as digital ad budgets fall

SNAP’S WOES

Snap, which sells ads through videos and a range of filters, is seen as an “experimental platform” by many advertisers, who tend to quickly shift their shrinking ad dollars to larger established platforms.

“A challenged macro continues to see ad buyers prioritize their larger, core platforms, namely Google and Meta, as they monitor consumer health,” Bernstein analyst Mark Shmulik said, adding that ad buyers reducing their spend particularly on smaller experimental platforms.

Analysts are also concerned about Snap’s move to slash headcount by 20%.

Jefferies analysts noted that Snap has been growing headcount at over 30% for four straight quarters, but raised concerns about the company’s ability to meet growth targets with a smaller employee base.

Snap’s stock has lost about 77% of its value so far this year, while Alphabet, Meta and Pinterest have lost between 30% and 60%. Twitter, however, has gained 21% on the prospect of billionaire Musk buying the company.

“We now believe that Snap will have difficulty remaining under control of its own destiny over the next six to nine months,” MKM Partners analyst Rohit Kulkarni said.

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