Snap's Warning of a Weaker Outlook Impacts Tech Stocks

Snap Inc. recently warned about the deteriorating economy, and its impact was seen on the internet and social media stocks late Monday. It ruined the comeback attempts of the market from earlier in the day.

Snap Inc. Chief Executive Evan Spiegel gave the warning during the JP Morgan technology conference. He said that economy has" definitely deteriorated further and faster" than Snap expected when it gave its forecast during its earnings call last month. Spiegel also added that the Snapchat parent is slowing the hiring pace for 2022 and is seeking ways to cut costs.

After the warning, the shares of Snap fell by over 30% in after-hours trading. The stocks of other internet and social-media companies also tumbled. Alphabet Inc. slipped 3.6%, Facebook parent Meta Platforms Inc. tumbled 7%, Pinterest Inc. tumbled 12%, and Twitter Inc. lost an additional 3.7%.

The US stocks were also down Tuesday afternoon. S&P 500 and Nasdaq Composite traded considerably lower. This was not pleasant for investors hoping for recovery after US stocks finished higher on Monday. The Dow had surged 618 points, and S&P increased by 1.9%. The Nasdaq Composite had also gained 1.6%.

In the warning, Spiegel also mentioned that Snap was dealing with problems like supply-chain issues, inflation, and concerns about interest rates and the war in Ukraine. He said, "There's a lot to deal with in the macro-environment today, but we're staying focused and really on the long term and investing through it."

Paul Nolte, portfolio manager at Kingsview Investment Management, stated that he expected the US might fall into a recession in the next 6 to 18 months. He said, "Tech is getting the worst of it" after the warning by Snap Inc.

The Job Cuts

A few tech giants like Netflix, Uber Technologies Inc., and Robinhood Markets Inc. are also thinking of opting for spending cuts. They might also go for job cuts in the near future. Netflix has even taken some action in this regard as the company laid off 150 employees after seeing a sharp drop in customer growth for the first time in a long time (since the company's early days).

Impact on the Twitter Deal

The warning shared by Snap Inc. might also impact the ongoing soap opera kind of events happening with Elon Musk's deal to buy Twitter for $54.20 per share. The soap opera started when Musk tried different strategies to take over Twitter, and the company resisted. Anyway, the deal went through, but now Musk has put a halt to it. He claims that Twitter's account of 5% fake or spam accounts is inaccurate, and the real number is higher.

Though Twitter wants the deal to go through without complications, the market doesn't think that the deal will go through at the current price, which seems to be inflated. It is a possibility that Twitter shareholders will approve the deal Wednesday during the annual meeting of the company. We'll just have to wait and watch.




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