With record-high inflation and consequent interest rate increases, tech stocks have suffered a significant downtrend. Many companies have moved to reduce their digital advertising budgets in the face of high inflation, which is negatively impacting social media companies. Investors’ declining confidence in social media stocks is evident in the Global X Social Media Index ETF’s (SOCL) 5.9% decline over the past month.
Bessemer Venture Partners Byron Deeter has warned of further cutbacks in marketing budgets in the near term. In addition, SNAP CEO Evan Spiegel’s latest grim outlook has made analysts highly pessimistic about the near-term prospects of ad-supported companies. He said, “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month.” Also, the social media giant Meta Platforms Inc. (FB) warned that its second-quarter revenues could decline from the prior-year quarter.
Given this backdrop, we think it could be wise to avoid recently downgraded social media stocks Pinterest, Inc. (PINS) and Snap Inc. (SNAP), which might retreat further in the near term.
Pinterest, Inc. (PINS)
PINS in San Francisco operates as a visual discovery engine in the United States and internationally. The company shows visual machine learning recommendations based on pinners’ tastes and interests. Piper Sandler analysts recently downgraded PINS to Neutral.
On June 2, 2022, PINS announced its agreement to acquire THE YES, an AI-powered shopping platform for fashion. However, given PINS’ inconsistent financials, this collaboration might not deliver optimal profit margins in the near term.
PINS’ revenue came in at $574.88 million for the first quarter, ended March 31, 2022, up 18.5% year-over-year. However, its non-GAAP net income was $68.99 million, down 12.1% year-over-year, while its non-GAAP EPS came in at $0.10, down 9.1% year-over-year. Also, its adjusted EBITDA was $76.80 million, down 8.4% year-over-year.
Analysts expect PINS’ EPS to decline 15.9% in price year-over-year to $0.95 in 2022. The stock has lost 68.9% over the past year to close Friday’s session at $19.46.
PINS’ POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a D grade for Momentum, Stability, and Sentiment. Click here to access additional POWR Ratings for PINS (Growth, Value, and Quality). PINS is ranked #12 of 69 stocks in the F-rated Internet industry.
Snap Inc. (SNAP)
Venice, Calif.-based SNAP operates as a camera company in North America, Europe, and internationally. The company offers Snapchat a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight. It also provides Spectacles, an eyewear product. Piper Sandler recently downgraded SNAP to Neutral.
On May 23, 2022, a class-action lawsuit was filed against SNAP for allegedly violating Illinois’ Biometric Information Privacy Act by accumulating users’ biometric information without their consent. This might harm the company’s goodwill in the future.
For the first quarter ended March 31, 2022, SNAP’s revenue increased 38.1% year-over-year to $1.06 billion. However, its net loss increased 25.4% year-over-year to $359.62 million, while its net loss per share increased 15.8% year-over-year to $0.22. In addition, its free cash flow came in at $106.28 million, down 15.7% year-over-year.
Analysts expect SNAP’s EPS to decrease 52% year-over-year to $0.24 in 2022. Over the past year, the stock has declined 76.1% in price to close Friday’s trading session at $14.49.
SNAP’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D grade, which equates to Sell in our POWR Ratings system. It has an F grade for Stability and a D grade for Sentiment and Quality.
We have also graded SNAP for Growth, Value, and Momentum. Click here to access all the SNAP ratings. SNAP is ranked #62 in the Internet industry.
PINS shares were trading at $19.75 per share on Monday afternoon, up $0.29 (+1.49%). Year-to-date, PINS has declined -45.67%, versus a -12.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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