The social media companies feel the skid marks in the digital advertising market, especially Snap. The group has always struggled to make money – unlike Zoom.
Snapchat is under pressure – just like the app on the smartphone
Losing hopefuls are no longer popular with investors, including Snap’s. The shares of the parent company of the social media service Snapchat have lost a good 80 percent of their value in the past nine months, a third in after-hours trading on Monday alone. The price fell to as low as $15.40, which is as low as it was at the beginning of the pandemic.
Snapchat – robust gains are a long time coming
There are very simple reasons for this. Although the company has grown significantly in some cases in recent years, it has never achieved sustainable profits. That doesn’t sit well in an environment where high inflation, rising interest rates, the disruption caused by the war in Ukraine and weakening growth prospects mean that investors’ appetite for risk is no longer particularly high. When in doubt, they prefer to play it safe and sell the titles.
Snap issued a sales and profit warning on Monday after the US market closed. “The macroeconomic environment has deteriorated further and faster than expected,” the company announced. As a result, it is likely that revenues and expected earnings in the second quarter will be below previous forecasts, it said. That didn’t go over well. After all, Snap’s original predictions had fallen short of the notoriously optimistic expectations of the analyst community. Now they transferred their disappointment directly to similarly positioned, advertising-financed companies such as Meta, Twitter, Google or Pinterest.
There, too, some of the after-hours listings have come under significant pressure. Experts argue that companies must now bring their investors back to earth. In their eyes, the once innovative companies have matured and will no longer be able to grow as strongly as in the past. This also applies above all when they are increasingly competing with each other as the economy slows down.
Faced with increasing headwind, the “social networks” are all fighting at the same time for advertising dollars, which will probably soon become scarce. The advertising industry, on the other hand, is increasingly worried about its orders, while at the same time having to make friends with increasingly stringent data protection guidelines or restrictions such as those at Apple. In the past few weeks, these have already slowed down the development of the business, which had artificially boomed during the pandemic.
There have long been consequences. Facebook aka Meta cut spending last month and Twitter recently announced a hiring freeze and other cost-cutting measures to save money.
Most companies use the consequences of the war in Ukraine as an excuse for the sluggish development, only the video service provider Zoom Video Communications does not. On Monday, as part of the reporting for the first quarter, he provided a positive note and after-hours price gains because sales development and profit forecasts were slightly better than expected. However, the price gains quickly fizzled out again because investors doubt the growth opportunities, since Zoom is very hesitant to win larger customers given the strong competition.
Snap had a market value of up to $130 billion on Wall Street as of September last year, although the company was practically in the red. It has now lost more than 100 billion of those, and the trend continues to point downwards. At Zoom, even more has “fizzled out”: just a sixth of the original $160 billion has now remained.