Snap’s profit warning shouldn’t be taken out of context, says ad industry expert

Snap’s profit warning shouldn’t be taken out of context, says ad industry expert
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Snap Inc.’s recent profit warning, which sparked a selloff in tech stocks, should not be taken out of context, according to an advertising industry expert.

The Snapchat parent
SNAP,
-5.70%
sent ripples through internet and social media stocks last month when it warned that second-quarter revenue and earnings will likely come in below prior estimates.

The Santa Monica, Calif.-based firm cited a deteriorating economy for its warning, sending its shares tumbling. Shares of tech companies dependent on advertising, such as Alphabet Inc.
GOOG,
+0.00%,
Meta Platforms Inc.
META,
-3.77%,
Pinterest Inc.
PINS,
-2.02%,
and Twitter Inc.
TWTR,
-1.38%
also fell in the wake of the profit warning.

See now: Snap’s warning of a weaker outlook sends ripples through tech stocks

However, Snap is far from reflective of the overall market, according to Brian Wieser, global president of business intelligence at media agency GroupM.

“A company that has a shortfall in the tens of millions should not be causing market capitalization in the hundreds of billions to plummet,” he said.

Wieser believes that, fueled by rapid growth during the pandemic, Snap’s projections had been unrealistic.

“Too many media owners believe there was no limit to how much they can grow except for their ambition,” he said. “The problem is that these ambitions run into reality … you can’t grow faster than the economy forever, unless you become the economy.”

Buoyed by strong revenue and user growth last year, Snap shares rose to reach a 52-week high of $83.34 on Sep. 24, 2021. However, the company’s shares have fallen more than 69% this year and were trading at $14.55 on Thursday. The Nasdaq
COMP,
-0.95%
has declined more than 26% this year.

“There are risks,” he said, noting JPMorgan Chase & Co. CEO Jamie Dimon’s recent warning that an economic “hurricane” is looming.
Speaking at an investor conference last week Dimon said it’s not yet clear whether the “hurricane” is a minor storm or a “superstorm.”

While inflationary pressures have been weighing on the economy for months, Dimon also cited concerns about the impact of the war in Ukraine on commodity prices, warning that oil prices could surpass $150
a barrel.

See now: JPMorgan’s Jamie Dimon sees economic ‘hurricane’ coming: ‘Better brace yourself’

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