Social media stocks tumbled ahead of Friday's market opening following a flurry of industry news, including reports that Elon Musk could quietly cut Twitter staff by about 75% and Snap's fourth-quarter guidance.
Musk told potential investors in connection with the Twitter acquisition that he plans to cut about 75% of Twitter's 7,500 employees and leave the company with a small team, The Washington Post reported Thursday.
Dan Ives of Wedbush said in a note to a client that Twitter Inc was responsible for some of the job cuts, but the reported number may not be the best estimate.
“Musk cannot align his growth path with Twitter and a 75% figure with a zip code would be too aggressive in our opinion,” he wrote.
A Delaware judge has given Musk and Twitter until October 28 to work out the details of the proposed $44 billion deal. If not, then in November there will be a trial.
Shares of Twitter rose $2.55, or about 5%, to $49.89 on Friday.
Shares of Snap Inc. the other sector tumbled after the company behind Snapchat posted weak fourth-quarter guidance and its third-quarter earnings fell short of Wall Street's forecasts. Shares fell more than 28%.
Snap reported $1.13 billion in revenue in the third quarter, compared to $1.15 billion expected by analysts polled by Zacks Investment Research.
The Santa Monica, California-based company said in a letter to investors that it has no official guidance for the fourth quarter, as full-year revenue growth is expected to slow in the next quarter. Snap said its internal projections assume roughly the same year-over-year revenue growth.
A JPMorgan analyst notes that Snap is facing weak demand due to macroeconomic pressures, platform policy changes and competition.
"We appreciate management's efforts to limit what's possible – cutting spending and doubling down on more sustainable performance-based ads – but trends remain fragile and the macro environment is expected to tighten in 2023," he said in a post. .
Added to this are concerns about the use of social media platforms in the run-up to the midterm elections. While platforms such as Twitter, TikTok, Facebook and YouTube say they have stepped up their work to identify and stop malicious accusations that can stifle voices or even lead to violent confrontations, a review of some sites shows that in 2020 they are still catching up. Donald Trump's campaign lies helped spark riots at the US Capitol when he lost to Joe Biden.
Shares in parent company Facebook Meta Platform Inc. fell 1.2%.
Pinterest Inc. The news storm also took its toll on others in the industry, which fell 6.4%.