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Social media firms sink after bleak warning from Snapchat parent

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Snap Inc’s (SNAP.N) shares plunged nearly 40 per cent on Tuesday after a profit warning from the Snapchat parent signalled tough times ahead for the once-booming digital ad industry, sparking a sector-wide selloff.

The company was on course to erase more than $14 billion in market value, while Meta Platforms (FB.O), Pinterest (PINS.N), Twitter (TWTR.N) and Google-parent Alphabet (GOOGL.O) were altogether set to lose nearly $140 billion if losses hold.

Snap said on Monday it expected to miss quarterly revenue and profits targets that it set just a month earlier and would have to slow hiring and lower spending.

The bleak view from one of the sector’s most known players underlines how the Russia-Ukraine war, surging inflation and rising interest rates are hobbling social media companies at a time when they had just started recovering from the impact of changes to Apple’s iOS operating system.

“Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook, Pinterest and Google,” said Dennis Dick, a trader at Bright Trading LLC in Las Vegas.

“Once you start thinking about Google, that’s when the markets start to sell off.”

Tuesday’s selloff comes days after a Bank of America fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.

Analysts also said Snap’s outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52per cent in the prior quarter. The company also faces pressure from TikTok and a shift in ad budgets to Google and Facebook, they added.

“There’s a lot to deal with in the macro environment today,” Chief Executive Officer Evan Spiegel said at a tech conference on Monday.

 

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