Social media hammered by growing advertising questions

Social media has had a rough 2022 with lingering questions about ad spend, political ads and a $44 billion Twitter takeover that may or may not happen, according to the Elon Musk tweet you read .

Then late Monday, Snap issued a rather dire earnings warning, saying the “macroeconomic environment has deteriorated further and faster than expected” since last month.

All social media is in competition for advertising money, which is increasingly threatened by soaring inflation and changes at Apple Inc. that may restrict the information social media platforms can collect about users , an important selling point for advertisers.

Shares of Snap Inc, which runs the Snapchat app that offers disappearing messages and video special effects, plunged 40% at the opening bell on Tuesday.

And with Wall Street unsure whether the company is an outlier or a canary in the social media coal mine, shares of parent platforms Facebook, Twitter and Alphabet all tumbled alongside it.

If the early declines hold, it could wipe more than $100 billion off the books collectively in a sector that is already under duress.

Snap said late Monday that it now expects revenue and adjusted earnings before interest, taxes, depreciation and amortization to be below the lower bound of its previous guidance range.

Justin Patterson of social media tracker KeyBanc Capital Markets warned investors not to read Snap’s earnings warning too much, calling it “a warning flag but not a wake-up call on the whole of the sector”.

“We believe it is best to consider each channel in the context of the nature of advertisers and verticals, historical directions, revenue growth drivers and investments to assess the level of risk to revenue. and profitability of the macro environment,” Patterson wrote.

The volatility comes in a week when Meta Platforms and Twitter hold their annual shareholder meetings, with a particularly intense focus on what could be a heated rally for Twitter. Elon Musk hit the pause button on the takeover, saying he needed more information on how many “spam bots” the social media platform actually has.

A note from Dan Ives, who tracks social media at Wedbush, sums up the confusion.

“We believe there is currently a 60% chance that Musk will try to walk away and use this spam account issue as a scapegoat to get out of the deal and a 40% chance that the Twitter board and Musk achieve a new price in the coming weeks,” he wrote in a note to clients.

Twitter stock fell more than 3% at the market open.

Adding to the social media uproar is Facebook’s parent company Meta. The company said it would begin publicly providing more details about how advertisers are targeting people with political ads just months before the US midterm elections.

Meta is particularly sensitive to the changes made at Apple and is now facing a civil lawsuit against its boss, Mark Zuckerberg. On Monday, the District of Columbia sued Zuckerberg, seeking to hold him personally responsible for the Cambridge Analytica scandal, a breach of the personal data privacy of millions of Facebook users that has become a major corporate and political scandal.

Shares of Meta Platforms Inc. fell harder than any other company at the opening bell on Tuesday, slipping nearly 8%.

Alphabet Inc., Google’s parent company, fell 6%.