Snap Stock: Why It’s Down 47.5%

Especially technology stocks like Snap (WKN: A2DLMS) are currently collapsing particularly badly. The American technology exchange Nasdaq has already lost almost 30% of its value from the high in November 2021 (05/24/2022). In previous years, however, it had risen very sharply and faster and faster, so that the current correction was overdue.

Some stocks have fallen even more. At Snap it is now almost 83%, and has been since September 2021. Today alone in Frankfurt they fell by 47.5% (05/24/2022). But what are the reasons for the current downturn and what will happen next?

Reasons for Snap’s stock slump

The short reason for the price slump is: Snap has revised its quarterly forecast. The company has previously forecast revenue growth of 20% to 25% and Adjusted EBITDA of between $0 million and $50 million for the second quarter of 2022.

However, a stock market release now states: “Since our forecast of April 21, 2022, the macroeconomic environment has deteriorated further and faster than expected. As a result, we believe we are likely to report revenue and Adjusted EBITDA below the low end of our guidance range for the second quarter of 2022. We continue to look forward to the long-term growth opportunities for our business. Our community continues to grow, and we continue to see strong engagement on Snapchat and significant opportunities to grow our average revenue per user over the long term.”

In addition to Snap, other companies in the sector were immediately penalized. Meta Platforms (NASDAQ:GOLF) fell 7.62%, Pinterest (WKN: A2PGMG) 23.64% and Twitter (NASDAQ:AAPL) is down 5.55%. They all depend on advertising sales, which many companies are currently cutting.

A general downward trend in the industry would be less of a problem for Snap over the long term. But some observers do not rule out a relapse compared to TikTok. Additionally, Apple’s new tracking regulations (similar to Facebook’s) could dampen growth.

How it could go on

So far, Snap is de facto continuing to grow and is even hiring new employees this year. In all likelihood, sales should also continue to increase, even if the growth rate is likely to be lower.

If the company has been able to contain its loss further and further since 2017, it increased again in the first quarter of 2022. The main reason is the currently deteriorating economic environment. Since prices always follow operating profit development, Snap is going through a deep valley.

But its balance sheet is in good shape, with $3.7 billion in cash against $2.25 billion in long-term debt. So Snap should be able to survive the current phase.

In my view, the current discounts are already overstated assuming Snap will eventually become profitable.

Snap Stock: Why It’s Down 47.5% article first appeared on The Motley Fool Germany.

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Christof Welzel does not own any of the shares mentioned.

Randi Zuckerberg, a former head of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Meta Platforms, Pinterest, and Twitter.

Motley Fool Deutschland 2022

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