Snap, Twitter leads social media stocks lower after disappointing Q2 earnings: what the near term holds for this space

Snap, Inc.’s second quarter earnings reports. SNAP and Twitter, Inc. TWTR were a stark reminder of the problems social media companies have been facing in recent times.

Missing Snap Earnings: Snapchat parent Snap’s quarterly results showed topline results were not good for estimates. The company blames the weakness on macroeconomic weakness.

Snap’s results are rapidly diverging from the industry, KeyBanc Capital Markets analyst Justin Patterson said in a note assessing the results. To back up his conclusion, he highlighted comments from ad agencies that suggested things were going well in the first half of the year and the start of the third quarter. Snap faces competitive pressure from rivals such as TikTok and struggles to secure advertising budgets, the analyst said.

Twitter blames Elon Musk for ad slowdown: Twitter reported an unexpected drop in revenue in the second quarter. The social media platform attributed the weakness to macroeconomic uncertainty affecting ad spend and uncertainty surrounding Elon Musk’s deal to sell the company.

Social media stocks move with it: After quarterly results, Snap plunged 39.08% to $39.84, bringing the loss for the year to nearly 80%. The stock lost about $9 billion in market capitalization. Twitter, which fell about 2% intraday, managed to cut its losses and finished 0.81% higher at $39.84.

Read Benzinga’s Technical Analysis for Meta Shares After Snap Earnings Release

In response to Snap’s plunge, other social media stocks plummeted, wiping out billions in market caps.

Meta Platforms, Inc. META finished 7.59% lower at $169.27. Pinterest, Inc. PINS fell 13.51% to $18.11. GOOGL GOOG of Alphabet, Inc., owner of YouTube, lost 5.63% to $107.91. Dating app owner Match Group, Inc. MTCH finished 3.31% lower at $72.21. bumble inc. BMBL, another dating app, fell 4.56% to $33.88.

Companies with exposure to ad spend also fell.

Read-across for other companies? Apple, Inc.’s AAPL analyst Gene Munster. said Meta’s results probably won’t be as bad as Snap’s. However, the analyst warned investors to be aware that there is a risk.

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

Benzinga’s view: If macroeconomic fundamentals do not improve, there is the possibility that advertising budgets will be further reduced, impacting the performance of these companies. With inflation still high and the threat of aggressive rate hikes looming, 2022 could be a lost year for most of these social media companies.

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