What happened
Shares of Snap (SNAP +2.42%) were moving lower today after one analyst lowered their rating on the social media stock. In addition, a weak retail sales report and several rate hikes from central banks this morning and yesterday seem to hint at the risk of a global recession.
As of 9:53 a.m. ET, shares of the Snapchat parent were down 8.2%, while the Nasdaq was off 1.9%.
Image source: Getty Images.
So what
Jefferies analyst James Heaney downgraded Snap from buy to hold, saying the Street is overestimating growth in digital ads in 2023 and 2024. The analyst doesn't see any distinct catalysts for Snap that would lead it to outperform in a weak environment. Heaney lowered the company's 2023 revenue estimates by 3% to 7% across the board, and gave Snap a price target of $10, down from $12.
Comments from the Federal Reserve yesterday in its decision to raise the federal funds rate by 50 basis points to between 4.25% and 4.5% also seemed to confirm Heaney's fears. Fed Chair Jerome Powell stood by his previous remarks that interest rates would remain elevated until the inflation rate falls back to 2%. The central bankers also raised their forecast for 2023 interest rates, saying they now see the federal funds rate ending next year at 5.1%.
Higher interest rates will increase the likelihood of the economy tipping into a recession, which is bad for Snap since it's dependent on advertising spending. Additionally, the Bank of England and the European Central Bank both raised their interest rates this morning, adding to pressure on the global economy.
Finally, retail sales fell 0.6% from October to November, below expectations at a drop of 0.1%, a sign that consumer spending may already be slowing down. Monthly retail sales jumped 1.3% in October, meaning that consumers may have gotten an early start on their holiday shopping to take advantage of clearance sales.
NYSE: SNAP
Key Data Points
Now what
Snap, which had once been seen as a promising growth stock, has blamed macro challenges several times this year for its slowing revenue growth. Revenue increased just 6% in the third quarter, and it pulled its guidance for the fourth quarter due to economic uncertainty.
Today's downgrade and the news from central banks and retail sales are only adding to those fears for the social media stock.
