Why Snap Stock Dropped This Week
What happened
Snap (NYSE: SNAP) shareholders trailed the market this week as the stock fell 4% through Thursday trading compared to a 0.5% increase in the S&P 500, according to data provided by S&P Global Market Intelligence. The drop added to significant losses for the social media platform's shares, which are down roughly 50% so far in 2022.
The decline was powered by increasing concerns from investors about a tougher selling environment in the online advertising business.
Image source: Getty Images.
So what
Snap depends on advertising sales in its Snapchat platform. That's the key reason why shares fell sharply after the company said in late May that this market is under more pressure today. "The macroeconomic environment has deteriorated further and faster than anticipated," management said at the time as it projected sales and earnings would fall below its recently issued second-quarter guidance.
This week's stock slump came as investors continued to lower their short-term expectations around Snap's core advertising business. The stock received downgrades from investing firms over the last few days, mainly on worries about the slowdown in that niche. Facebook parent Meta Platforms' stock has been under pressure recently, too, due to weakening trends in the digital advertising space.
Now what
Snap stock might remain volatile over the coming weeks as investors wait for more clarity about its sales trends. That clarity will arrive in its Q2 earnings release, which occurs in mid-July. Executives had originally forecast that this report will show sales gains of between 20% and 25% as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) land between breakeven and $50 million.
Snap warned in late May that it will likely miss the low end of both forecasts due to that shifting selling environment. The big question today is whether that underperformance is slight and temporary, or reflective of more fundamentally tough operating conditions ahead for the social media business.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos has positions in Meta Platforms, Inc. The Motley Fool has positions in and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy.
