Social media companies rely on the fortunes of other businesses that buy ad space on their sites. These businesses are bearing the strain of worsening economic conditions. Social media ad spending is expected to decline to 5.2% in 2023.

In the United States, social media ad sales growth increased 3% in the first half of 2022 to $30 billion, declining significantly from an increase of 38% in the same period a year ago. Media investment and research firm Magna has lowered its expectations of U.S. ad growth to just 4.8% next year.

Hence it might be best to avoid the social media stocks Snap Inc. (SNAP - Get Rating) and Nextdoor Holdings, Inc. (KIND - Get Rating), which have been slumping significantly in price lately.

Snap Inc. (SNAP - Get Rating) 

SNAP operates as a camera company internationally. The company offers Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images. 

In August, it was reported that SNAP reached a $35 million settlement with the state of Illinois in a class-action lawsuit to pay Illinois residents who used the app’s “lenses” or “filters” features between a specific time. The lawsuit alleged that SNAP’s filters and lenses violated the state’s Biometric Information Privacy Act (BIPA).  

In the second quarter ended June 30, SNAP’s total cost and expenses increased 28.7% from its prior-year quarter to $1.51 billion. Its adjusted EBITDA declined 93.9% from the prior-year quarter to $7.19 million. The non-GAAP net loss came in at $29.60 million, indicating an increase of 120.5% from its year-ago value. The company’s net loss per share increased 120% year-over-year to $0.02. 

Analysts expect SNAP’s EPS to decline 85.8% year-over-year to $0.07 for the fiscal year ending December 2022. Its revenue is estimated to be $4.67 billion for the same year.  

The stock has declined 86% over the past year and 77.7% year-to-date to close its last trading session at $10.51.

SNAP’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

SNAP is graded an F in Stability and a D in Growth, Momentum, Sentiment, and Quality. It is ranked #57 out of the 64 stocks in the F-rated Internet industry.  

In addition to the POWR Rating grades we’ve stated above, one can see SNAP’s ratings for Value here. 

Nextdoor Holdings, Inc. (KIND - Get Rating) 

KIND operates as a neighborhood network that connects neighbors, businesses, and public services internationally. It enables small and mid-sized businesses, large brands, public agencies, and nonprofits to receive information, give and get help, and build connections. 

KIND’s total cost and expenses increased 38% year-over-year to $92.80 million in the fiscal second quarter that ended June 30, 2022. Its loss from operations rose 78.2% year-over-year to $38.26 million. The company’s net loss grew 71.4% from the prior-year quarter to $36.84 million, while its net loss per share came in at $0.10 in the same quarter. 

KIND’s consensus EPS estimate for the fiscal third quarter that ended September 2022 came in at a negative $0.07. Its revenue is estimated to be $53.82 million for the same quarter.  

The stock has declined 79.9% over the past year to close the last trading session at $2.62. It has slumped 66.8% year-to-date. 

The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. KIND also has an F for Stability and a D for Growth, Value, Momentum, and Quality. It is ranked #58 in the same industry.  

Click here to see the additional POWR Ratings for KIND (Sentiment).

SNAP shares were trading at $10.58 per share on Thursday afternoon, up $0.07 (+0.67%). Year-to-date, SNAP has declined -77.50%, versus a -22.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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