Social media hammered by mounting questions over advertising

Social media has had a rough 2022 with lingering questions about advertising spending, political ads and a $44 billion takeover of Twitter that may or may not be happening, depending on which Elon Musk tweet you read.

Then late Monday, Snap issued a rather dire profit warning, saying that “the macroeconomic environment has deteriorated further and faster than anticipated,” since just last month.

All social media competes for advertising money, which is increasingly under threat from spiking inflation and also changes at Apple Inc. that can restrict the information social media platforms can collect on users, a big selling point for advertisers.

Shares of Snap Inc, which runs the Snapchat app that features vanishing messages and video special effects, plunged 40% at the opening bell Tuesday.

And with Wall Street unsure if the company is an outlier or a canary in the social media coal mine, shares of Facebook parent Meta Platforms, Twitter and Alphabet all slumped alongside it.

If early declines hold, it could wipe more than $100 billion off the books collectively in a sector that is already under duress.

Snap late Monday said it now foresees revenue and adjusted earnings before interest, taxes, depreciation, and amortization coming in below the low end of its prior forecasted range.

Justin Patterson of KeyBanc Capital Markets who follows social media warned investors not to read too much into Snap's profit warning, calling it “a cautionary flag but not one to sound the alarm on the entire sector."

“We believe it is better to view each channel in the context of the nature of advertisers and verticals, guidance history, revenue growth vectors, and investments to assess the level of risk to revenue and profitability from the macro environment," Patterson wrote.

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