What Investors Should Know About Snap’s Warning

May 30, 2022 at 15:45 PM EDT

Snaps Slashes Guidance

As a consequence of a worse-than-expected economic slowdown last month, Snap, the parent company of Snap Inc. (NYSE: SNAP), cut its quarterly projection on Monday. According to the company’s management, sales and adjusted EBITDA will fall below our Q2 2022 projection range. Moreover, according to the statement, concerns with inflation and the supply chain, as well as labor and the supply chain, harm Snap. Snap has also been impacted by the Ukraine crisis, platform changes, and regulations due to financial uncertainty. This year, Snap said that it would have to reduce its workforce to save money.

Getting the Word Out

As a result of Snap’s revised downward projection, US economic growth and technology stock prices fell. Since the current bear market, the bear market has been steadily rebounding. When Snap’s share price plunged, it was a wake-up call to other companies whose profits are based on an advertising-based strategy. I believe this was caused by the decline in Alphabet (GOOGL) – Get Alphabet Inc. Class A Report and Meta – Get Meta Platforms Inc. Class A Report tech equities. Most of their income comes from advertising (97%) and marketing (82%). Meta stock fell by as much as 7% in Tuesday’s pre-market trade, while Alphabet stock fell by 3%.

Invesco QQQ QQQ, which monitors the Nasdaq 100, has taken a beating as the economy has weakened. Already in 2022, the ETF has lost 27% of its value. Fear of a recession, soaring inflation, and other macroeconomic challenges are weighing on investors. Consequently, Snap’s amended outlook is notable since it hints at the continuing difficulties of ad-based digital businesses. Social media firms, in particular, may see a decline in long-term growth. The long-term growth of these firms may be badly harmed since they trade at high multiples.

SNAP’s Future: What’s in Store?

Ads provide 99 percent of Snap’s income. Snap must maintain the value of its adverts while also retaining and expanding the number of its consumers. For the first time, Snap earned a profit in Q4 but then reported a loss of 2 cents per share in Q1. Snap’s second-quarter profits per share are expected to fall by a whopping 87%. Snap’s business relies on it to continue user growth. Snap’s DAUs (daily active users) increased by 18% year over year to 332 million in the last quarter.

Snap’s projected price-to-earnings multiple of 69 times, which is 307 percent higher than the industry average, has led investors to reassess the stock’s intrinsic worth once again, despite worries about macroeconomic risks. For the time being, investors should stay away from Snap stock because of the company’s high multiples and poor profit margins. In the short- to medium-term, things may grow worse before they improve.

The post What Investors Should Know About Snap’s Warning appeared first on Best Stocks.