Snap may be 'canary in the coal mine,' as analysts slash PTs following Q2 warning

May 24, 2022 7:50 AM ETSnap Inc. (SNAP), GOOG, META, ROKUGOOGL, TTD, PINS, TWTR, AAPLBy: Chris Ciaccia, SA News Editor89 Comments

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Snap (NYSE:SNAP) shares plunged on Tuesday after the camera company warned its second-quarter revenue and EBITDA would be below the low-end of its previous guidance, resulting in some investment firms to wonder if it is the "canary in the coal mine."

KeyBanc Capital Markets analyst Justin Patterson lowered the per-share price target on Snap (SNAP) to $27 from $45, noting that the company's warning that the "macroeconomic environment has deteriorated further and faster than anticipated" is notable given the implied pace of deceleration, though it could be idiosyncratic to the company.

"Given Snap is a low-single-digit percentage of industry ad revenue, we view the [second-quarter] guidance update as a cautionary flag but not one to sound the alarm on the entire sector," Patterson wrote in a note to clients.

Snap (SNAP) shares fell nearly 30% to $15.75 in premarket trading on Tuesday.

In addition, the firm noted that large advertisers, such as Alphabet (NASDAQ:GOOG) (GOOGL) and Meta Platforms (NASDAQ:FB) and connected TV advertisers like The Trade Desk (TTD) and Roku (NASDAQ:ROKU) are likely to "hold up better," while smaller social networks, such as Pinterest (PINS) and Twitter (TWTR) "could face incremental pressure."

Alphabet (GOOG) (GOOGL) and Meta Platforms (FB) fell nearly 4% and 7% in premarket trading, while The Trade Desk (TTD), Roku (ROKU) fell 8% and 5%, respectively, off the worst levels of the session.

Pinterest (PINS) and Twitter (TWTR) fell 12.5% and 3.5%, respectively.

There are likely to be three additional sources of concern for Snap (SNAP), Patterson noted: the first being that revenue grew less than 17% for the rest of the second quarter, compared to roughly 30% for the first 20 days; Apple (AAPL) could announce additional iOS changes at its upcoming developer conference that could hurt advertisers; lastly, management looks as if it will invest through the slowing advertising cycle, which is likely to hurt EBITDA.

Patterson pointed out that even though the aforementioned stocks are likely to remain under pressure, The Trade Desk (TTD), which reported results just 13 days ago, noted that trends in Europe were improving, leaving the possibility the issues are specific to Snap (SNAP).

"Given Snap is a low-single-digit percentage of industry ad revenue, we view the 2Q guidance update as a cautionary flag but not one to sound the alarm on the entire sector," the analyst added.

Benchmark analyst Mark Zgutowicz lowered his per-share price target on Snap (SNAP) to $20 from $40, noting that it likely spells the end of the company's fingerprinting benefits on iOS.

"Regardless of whether Apple puts the kibosh on all fingerprinting -opted in or out users- at its upcoming developer conference, the practice was a band aid vs. resolution to lost iOS signal," Zgutowicz wrote in a note, adding that the company's own first-party data, along with targeting and measurement solutions needs to deliver a "competitive [return on ad spend]."

Bank of America analyst Justin Post lowered the per-share price target on Snap (SNAP) to $30 from $50, noting that the warning was a "surprise" given that the company gave its outlook just a month ago.

Earlier this month, Lone Pine Capital lowered its stake in Snap (SNAP), along with several other tech stocks, according to a recent filing.

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