Snap Earnings Could Rattle Social Media Stocks

Snapchat owner Snap (SNAP), a canary in the coal mine for social media stocks, will present second-quarter results late Thursday. Snap earnings could have sizable impact on the group.

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What makes Snap a canary is that it’s the season’s first large social media company to report quarterly earnings. Snap relies on advertising for about 95% of revenue, which is true of other social media stocks. When Snap goes sour, like Facebook owner Meta Platforms (META) did, so do others in the flock.

Consider what happened when Snap, in late May, lowered an outlook it initially issued April 21. It said the macroeconomic environment had deteriorated further and faster than anticipated.

Snap stock plummeted 43% in reaction. Meta sank 7.6%. Google parent Alphabet (GOOGL), which also owns YouTube, dropped 5%, while Twitter (TWTR) retreated 5.5%.

In addition, Pinterest (PINS) plunged 24% while Etsy (ETSY) fell 8%.

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Signs of weakness emerged when Snap reported first-quarter results on April 21. That report, while showing a small miss on the top and bottom lines, came with a warning.

“The first quarter of 2022 proved more challenging than we had expected,” Snap Chief Executive Evan Spiegel said in written remarks with the company’s earnings release. “While our revenue continues to grow year over year, it is growing more slowly.”

Challenges Hitting Snap Earnings

Advertisers in a wide variety of industry groups report concerns related to the macro operating environment. Those worries include continued supply chain disruptions, rising input costs, economic concerns due to rising interest rates, and concerns related to geopolitical risks stemming from the war in Ukraine.

Another big problem is that Apple (AAPL) changed the advertising tracking on its operating system. Consumers got more privacy but advertisers lost out on valuable user-tracking information.

When Snap reports results after the close, the consensus calls for an adjusted loss of 21 cents a share, vs. a 10-cent loss in the year-ago quarter, according to FactSet.

Analysts are expecting revenue of $1.14 billion, up 16% but its slowest growth in more than five quarters.

“SNAP’s commentary on forward-looking advertiser demand amid geopolitical conflict, supply chain, and inflation induced headwinds will be key,” said Cowen analyst John Blackledge, in a research report to clients.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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