Snap Inc (NYSE: SNAP), the parent company of the social app Snapchat, revealed on Monday, May 23, that it expects to miss its quarterly revenue and profit goals only a month after setting those goals. The company says it will be slowing spending and hiring as a result. Following Snap's announcement, social media stocks dropped virtually across the board.
According to Reuters, Snap plummeted 40% and closed below its 2017 IPO price of $17 to a dismal $12.79 per share, the lowest point since the beginning of the pandemic. Meanwhile, Twitter (NYSE: TWTR), Meta Platforms (NASDAQ: FB), Pinterest (NASDAQ: PINS), and Google's Alphabet (NASDAQ: GOOG) each dropped between 5% and 24% after Snap's report.
Snap alone was expected to lose $15 billion in market capitalization, and the combined value losses of the other major players were expected to reach $200 billion.
Now that the surge of advertising growth following the relaxation of pandemic restrictions in summer 2021 has begun to wane, investors are starting to lose their fervor for social media stocks.
"A broad ad market recession appears increasingly likely," Wells Fargo (NYSE: WFC) analyst Brian Fitzgerald said in a report on Tuesday.
Brian Wieser, global president of business intelligence at ad agency GroupM, said that platforms like Snap overestimated their ability to maintain the rapid growth of 2021 and that the overestimation was a driving force behind the disappointing report.
"There's a resetting of expectations," Weiser said.
Along with the overly ambitious goals, Weiser said that social media platforms have also been hurt by the Ukraine conflict, inflation, rising interest rates, and the recent update to Apple's (NASDAQ: AAPL) privacy controls.
"The macroeconomic environment has deteriorated further and faster than anticipated," Snap said in its regulatory filing.
Increasing competition from TikTok is expected to be another significant hurdle in the path of Snap and other major social media platforms, according to the principal analyst at research firm Insider Intelligence, Jasmine Enberg. Discord and Amazon's (NASDAQ: AMZN) Twitch are also growing in popularity amongst Snap's young user base.
Social media companies are just one part of the suffering tech market. Just days before Snap's announcement, Bank of America (NYSE: BAC) released results from a fund managers survey that showed an increasingly bearish stance towards tech stocks. This comes following a 14-year bull market trend in tech.
Some details of Snap's report suggest that its expenses will exceed its revenue growth in the coming months, including the fact that its headcount was up 52% in the first quarter of 2022.