After Snap Inc. issued a warning on profits, the contagion spread to tech stocks more broadly, wiping out $135 billion and investors rush to unload shares. These woes further weighed down a sector already weighed down by increasing concern over the profitability of Social media business models, stalled user-growth, and inflation worries.
Snap immediately tumbled 43%, their largest intraday decline ever, dropping it below its initial IPO offering prive of $17. The selloff wiped out $16 billion in value, adding to the drops in Google, Meta, Twitter, and Pinterest.
As the selloff continued, Trade Desk Inc. dropped 19%, fuboTV Inc. dropped 7%, Magnite Inc. dropped 13%, LiveRamp Holdings Inc. dropped 8%, Roku Inc. dropped 14%, Vizio Holding Corp. dropped almost 10%, Omnicom Group Inc. dropped 8.4%, and Interpublic Group of Cos dropped 4.9%.
Piper Sandler analyst Tom Champion wrote of the drops, “At this point, our sense is this is more macro and industry-driven versus Snap specific.”
Others on Wall Street saw issues with social media advertising business models, with Citi analyst Ronald Josey saying “a slowing macro is likely impacting advertising results across the broader Internet sector, although we believe platforms more exposed to brand advertising—like Twitter, Google’s YouTube, and Pinterest—are likely experiencing a greater impact overall.”
Social media companies are facing increasingly fierce competition for advertising dollars during a challenging economic period. Soaring inflation is cutting consumer spending, while recent privacy changes, such as Apple Inc.’s tracking restrictions, have impacted the implementation of advertising tracking and monitoring.
User growth is also impacting these companies as they search for new customers to target ads to in the already saturated market. In February, Facebook’s parent Meta suffered the biggest one-day drop in market value for any U.S. company ever, after noting user additions had stalled.
The Nasdaq 100 Index dropped 2.2% on Tuesday. The tech-index is down 28% so far this year.
