Snap, Twitter Lead Social Media Stocks Lower Following Disappointing Q2 Earnings: What Does Near-Term Hold For This Space

Second-quarter earnings reports from Snap, Inc. SNAP and Twitter, Inc. TWTR served as a stark reminder of the problems faced by social media companies in recent times.

Snap Revenue Misses: Quarterly results from Snapchat parent Snap showed that topline results were shy of estimates. The company blamed the macroeconomic weakness for the softness.

Snap’s results are rapidly diverging from the industry, KeyBanc Capital Markets analyst Justin Patterson said in a note reviewing the results. To support his deduction, he highlighted comments from ad agencies that suggested things were fine in the first half of the year, as well as at the start of the third quarter. Snap, according to the analyst, is facing competitive pressure from rivals such as TikTok and is finding it hard to win ad budgets.

Twitter Blames On Elon Musk, Ad Slowdown: Twitter reported an unexpected decline in second-quarter revenue. The social media platform attributed the weakness to macroeconomic uncertainty that is impacting ad spending and the uncertainty surrounding Elon Musk’s deal to take the company private.

Social Media Stocks Move In Sympathy: Following the quarterly results, Snap plunged 39.08% to $39.84, taking its year-to-date loss to close to 80%. The stock shed about $9 billion in market cap. Twitter, which fell by about 2% intraday, managed to cut its losses and ended 0.81% higher at $39.84.

Read Benzinga’s technical analysis for Meta stock post Snap earnings release

Reacting to Snap’s plunge, other social media stocks also plummeted, wiping away billions in market capitalizations.

• Meta Platforms, Inc. META ended 7.59% lower at $169.27.
• Pinterest, Inc. PINS plunged 13.51% to $18.11.
• Alphabet, Inc.’s GOOGL GOOG, which owns YouTube shed 5.63% to $107.91.
• Dating app owner Match Group, Inc. MTCH ended 3.31% lower at $72.21.
• Bumble Inc. BMBL, another dating app, fell 4.56% to $33.88.

Companies with exposure toward ad spending also moved to the downside.

Read-across For Other Companies? Noted Apple, Inc. AAPL analyst Gene Munster said Meta’s results aren’t likely to be as bad as Snap's. The analyst, however, cautioned investors to be cognizant that there’s a risk.

Apple’s privacy changes also continue to pose a risk to social media companies.

Benzinga’s Take: If the macroeconomic fundamentals do not improve, there is a possibility of ad budgets being slashed further, impacting the performances of these companies. With inflation still ruling high and the threat of aggressive rate hikes looming, 2022 could be a lost year for most of these social media companies.