Investors Flee from Digital Advertising Stocks Amidst Economic Concerns – Snap Stock Plummets 43%

Social media stocks lost more than $135 billion in market value Tuesday following Snap’s profit warning.

Companies that rely on digital advertising saw their stock prices fall as investors retreated over continuing worries about the state of the economy.

Snap was the hardest hit with its stock plummeting a staggering -43.08% on the day after it issued a profit warning after the market closed on Monday, saying that “The macroeconomic environment has deteriorated further and faster than anticipated. 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.”

As a result, other social media companies and nearly every other company that relies on digital advertising, saw investors retreat on fears a recession might be at hand.

 
 
  • Snap -43.08%
  • Pinterest -23.64%
  • Meta Platforms -7.62%
  • Twitter -5.55%
  • The Trade Desk -18.51%
  • Roku -13.74%
  • PubMatic -15.85%
  • Magnite -13.15%
  • Criteo -6.46%

Google parent Alphabet also saw its stock price drop 5.14% and the Global X Social Media ETF (SOCL), which owns shares in all of these companies, dropped 8.13% during trading hours.

In addition, advertising companies Omnicom Group Inc. fell 8.4% and Interpublic Group dropped 4.93%.

“Macro headwinds likely extend to all of digital advertising,” JMP Securities analysts wrote in a note following Snap’s disclosure.

 
 

The note added that brand budgets, particularly in digital, “are more at risk of being reduced as companies tighten ad budgets.”

On the most fundamental level, advertising is among the first cost items that companies look to cut when in the face of an economic downturn. However, platforms such as Snap and Facebook, and Google are now competing for advertising dollars at an even more difficult time amidst rising inflation that places increasing pressure on both brands and consumer spending.

All of this coupled with privacy changes from Apple has put a damper on businesses that not long ago were surging during much of the pandemic.

“We expect all online ad platforms to feel some impact of a significant consumer pullback,” wrote Morgan Stanley analysts after the Snap warning.

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