Why tech stocks fell on Friday
Tech stocks had another rough day on Friday, and the main reason seems to be Snap’s (NYSE: SNAP) income report. The company said it lost $422 million in the second quarter, despite a 13% increase in revenue and an 18% increase in users. Management also said revenue was flat so far in the third quarter, meaning its growth has slowed rapidly.
News of Snap’s poor results hit a host of tech companies that could be impacted by similar trends. Asana (NYSE:ASAN) fell 10.6% during the session, Unity (NYSE:U) fell 10.9%, DocuSign (NASDAQ: DOCU) fell 6%, and HubSpot (NYSE: HUB) fell 7.6%. Shares ended the day down 9.9%, 9.7%, 4.5% and 5.8%, respectively.
There are a few factors that impact the market in general. The first is that we are clearly seeing a decline in advertising spending. This could be due to user tracking transparency changes implemented by Apple last year, or it could be companies that cut spending in anticipation of a downturn in business.
Declining advertising effectiveness could also hurt spending, which could impact a company like Unity as it tries to expand its advertising business in games.
If companies are reducing advertising, which attracts new customers, it makes sense that they would also look to reduce their spending on technology subscriptions with companies like Asana, DocuSign and HubSpot. These actions have had major tailwinds behind them as companies have moved away and attempted to automate more tasks, but now their customers may be scrutinizing every dollar they spend more carefully.
The market saw all of this as reason enough to broadly sell tech stocks on Friday. Keep in mind that an earnings report doesn’t trend, but this Snap’s report wasn’t a good sign at the start of this earnings season.
Growth expectations are adjusted for companies across the market. For example, Snap’s stock value is very different if the company grows revenue at a double-digit percentage rate from flat revenue. As expectations decline, stock prices also decline.
But I think there’s a short-term bias in a lot of these moves. Each of these companies has valuable products in the market, and they will adapt and change the way they sell and grow over time. It can mean charging more for products, and it can mean cutting expenses. But I still think technology stocks, and software as a service stocks in particular, have a lot to offer even in this market.
If you’re a long-term investor, this seems like a great opportunity to start accumulating stocks that might have been too expensive before.
10 stocks we prefer to Asana, Inc.
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They have just revealed what they believe to be the ten best stocks for investors to buy now…and Asana, Inc. wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
* Portfolio Advisor Returns as of June 2, 2022
Travis Hoium has positions in Apple, Snap Inc. and Unity Software Inc. The Motley Fool has positions and recommends Apple, Asana, Inc., DocuSign, HubSpot and Unity Software Inc. The Motley Fool recommends the following options: long January 2024 $60 calls on DocuSign, long calls March 2023 $120 on Apple, and short calls March 2023 $130 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.