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Snap Inc’s profit warning sends ripples through social media stocks

A woman stands in front of the logo of Snap Inc on the floor of the New York Stock Exchange (NYSE) in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

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May 24 (Reuters) – Snap Inc’s (SNAP.N) shares slumped 30% before the bell on Tuesday after a profit warning from the social media company signaled tough times ahead for the once-booming industry, sparking a sector-wide selloff.

The owner of Snapchat was on course erase about $10 billion from its market value, while larger players Meta Platforms (FB.O) and Google-parent Alphabet Inc (GOOGL.O) were both down more than 4%.

Snap said on Monday it expected to miss quarterly revenue and profits targets that it set just a month earlier, citing a faster-than-expected downturn in the economy. read more

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Like companies across sectors, Snap faces pressure from inflation, labor shortages and rising interest rates that have raised fears of a global economic slowdown.

“This suggests that in just a month, the environment has aggressively deteriorated further. We see no real reason to not take Snap’s negative pre-release at face value,” Evercore ISI analyst Mark Mahaney said.

While the weakening economy is the main factor, competition from TikTok and a shift in ad budgets to Google and Facebook are also hurting the company, he added.

Analysts also said Snap’s outlook for core profit suggested expenses will outpace revenue growth in the period, given headcount was up 52% in the prior quarter.

While demand for online advertising picked up during the pandemic when consumers spent more time on social media, changes to Apple’s iOS operating system have dulled the industry’s growth prospects .

The warning from Snap also weighed on the wider market, with futures tracking Nasdaq 100 index down nearly 2%.

A Bank of America fund managers survey for May indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years. Allocation to tech has also dropped month over month by 23 percentage points, according to the survey.

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Reporting by Medha Singh and Nivedita Balu in Bengaluru; Editing by Aditya Soni

Our Standards: The Thomson Reuters Trust Principles.

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