Retail and social media bloodbath in store
How awesome is Evan Spiegal though? One of the few product geniuses of our times.
I wanted to write a quick pre-market warning on the social media stocks bloodbath after-hours on May 23rd. Today it’s early morning May 24th and I think retail guidance and advertising guidance will prove spectacular to the downside.
The Retail Letdown Continues
Strategists are looking for signs in the coming week that the stock market could be bottoming, but warn the path could be difficult. Earnings reports from a slew of retailers — including Costco, Macy’s, Nordstrom and Best Buy — take on more importance following earnings misses from Target and Walmart.
The Snap Warning
Snap will miss its own targets for revenue and adjusted earnings in the current quarter, CEO Evan Speigel warned on Monday in a note to employees. After-hours the stock of Snap is down 31%. It’s literally just $15 now and I could see this becoming a penny stock once again.
The social media company will also slow hiring through the end of the year as it looks to manage expenses. The problem? Meta and Pinterest’s stock are down in major sympathy, and I think this one-two punch of retail and social media could really hurt markets for a 9th straight week of NASDAQ declines.
Part of the letter was filed with the Securities and Exchange Commission. The recessionary fears of poor guidance in retail and advertising is part of the writing on the wall that growth is slowing faster than expected, as consumer scramble in rather volatile behavior.
“Today we filed an 8-K, sharing that the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month,” Spiegel wrote in the note. “As a result, while our revenue continues to grow year-over-year, it is growing more slowly than we expected at this time.”
Advertising Will Feel Some Pain
In April, Snap reported first-quarter earnings that missed Wall Street expectations for sales and profit. At the time, the company said it expected between 20% and 25% year-over-year growth in revenue. It forecast adjusted earnings before interest, taxes, depreciation and amortization of between $0 and $50 million.
“We believe it is now likely that we will report revenue and adjusted EBITDA below the low end of the guidance range we provided for this quarter,” Spiegel wrote in Monday’s update.
For Retail stocks it will also be more pain this week. It will essentially amount to the biggest downturn of this magnitude since the swift bear market decline in March 2020 at the start of the pandemic.
So if you are a dip buyer it’s important to be doing your due diligence as this happens. I would be thinking along these lines if not for the recession fears making things heavier than usual in mid-term outlook.
All in all, I expect advertising related stocks like Meta, Google, Pinterest, Snap and company to have a pretty terrible day. Combined with the poor guidance from the retail sector, it will be enough to drag us pretty heavily into the red.
For the most part, the World Economic Forum has no idea what they are talking about.
Snap is Growing better than Meta in 2022
Spiegel said Snap will continue to recruit new employees, but will slow its pace of hiring for the rest of the year. He still expects Snap to hire 500 new employees before the end of the year, according to the note. The company hired about 2,000 employees over the last 12 months.
Of the advertising stocks, if Snap got low enough I would consider buying it, this is because it has such an incredible synergy and loyalty with American GenZ. Even as Facebook, Pinterest and Twitter continue to show a lot of weakness as consumers move on to new experiences.
Snap’s stock price is down 52% YTD and it’s about to get a lot worse.
It will be interesting to see how far Snap’s price declines today, if it rebounds or continues its weakness with the Ad-tech sector really taking a hit.
Thanks for reading!