Snap slashes its Q2 outlook; shares tumble 30%
An internal memo from Evan Spiegel, the CEO of Snap Inc., to his employees has sent the company's shares spiraling downward. In the note, Spiegel warned about Snap missing its quarterly forecast due to deteriorated macroeconomic environment. The memo triggered an after-hours sell-off and its shares dropped 30%. This has also affected the stocks of other social media companies reliant on advertising.
Why does this story matter?
Tech companies are going through a tough time, and Snap is no exception. In its Q1 earnings report, the company had forecast a 20%-25% year-over-year growth in Q2. It drastically changed this in the internal memo. What is baffling is how an internal memo led to a total meltdown of tech stocks. This shows the low confidence investors have in tech shares right now.
Snap will slow down its hiring process this year
In the internal memo, part of which was filed with the SEC, Spiegel noted that Snap will miss its revenue and adjusted EBITDA targets for Q2. Due to the deteriorating macroeconomic environment, they are now expected to be below the low end of its guidance. The CEO also said that the company will slow its hiring process for this year due to altered conditions.
Alphabet, Amazon Meta, and Twitter saw their stocks spiraling down
Snap's announcement saw the stocks of other advertisement-reliant social medial platforms plummeting. Facebook's parent Meta dropped 7%, while Pinterest and Twitter slid 12% and 4%, respectively. Outside social media, Alphabet fell 3.6%, whereas Amazon dropped 2.2%. The domino effect of Spiegel's memo was felt in Nasdaq Futures as well. Snap itself saw its stocks crashing by 30% after its Q2 warning.
Rising inflation and war in Ukraine are the main causes
Spiegel attributed the revised expectations to various factors, including increasing inflation and interest rates and the Russian invasion of Ukraine. Snap has stopped accepting ads from entities owned by Russia. Last year's iOS privacy change that gave users the option to opt-out of off-app tracking was cited as another reason. The CEO also alluded to labor disruptions and supply-chain shortages as other causes.
Snap will implement cost-cutting measures
The revised targets will have an impact on Snap's future spending. The company will embark on cost-cutting measures, including slowing the pace of its hiring. Although it still plans to hire over 500 employees, it's considerably less than what it had in mind. The company will also re-prioritize its investments. Layoffs are not being discussed at the moment.
