Snap Inc. (NasdaqGS: SNAP) shares plunged Tuesday, dragging down social media and internet sector-related exchange traded funds after the social platform announced a surprise second-quarter miss that highlighted a sharp decline in online advertising revenue.
Snap Inc. shares declined 43.1% on Monday.
In a surprise announcement, Snap Inc. said revenue and adjusted pretax earnings for the second quarter fell below the range the company projected barely a month ago after a notable slowdown in advertising revenue, the Wall Street Journal reports.
Snap’s dire announcement bodes ill for other online giants like Google (NasdaqGS: GOOGL), Facebook (NasdaqGS: FB), and Amazon.com (NasdaqGS: AMZN), which largely overshadow Snap’s online presence.
On Monday, GOOGL decreased 4.9%, FB dropped 7.6%, and AMZN fell 3.2%.
Meanwhile, related ETFs that have large holdings in the components like the Global X Social Media ETF (SOCL) was 8.2% lower, the Communication Services Select Sector SPDR Fund (NYSEArca: XLC) was down 3.5%, and the Vanguard Consumer Discretionary (NYSEArca: VCR) dropped 2.8%.
In a presentation at an investment conference that brought out the filing, Snap chief executive officer Evan Spiegel warned that “the macroeconomic environment has definitely deteriorated further and faster than we expected.”
Evercore ISI analyst Mark Mahaney argued that the macroeconomic factors Snap warned of should be relevant for all online companies with a large ad platform. He also added that Snap’s significant exposure to Europe and brand advertisements would be especially negative for Meta due to Facebook’s significant European exposure, along with Twitter.
Morgan Stanley analyst Brian Nowak also said he expected “all online ad platforms to feel some impact of a significant consumer pullback,” according to the WSJ.
“Macro headwinds likely extend to all of digital advertising,” JMP Securities analysts said in a note following Snap’s disclosure, according to CNBC, adding that brand budgets, and especially digital ones, “are more at risk of being reduced as companies tighten ad budgets,” while direct response ads, or those that encourage viewers to take immediate action, are “more connected to consumer spend, particularly eCommerce.”
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