Hey guys, it's sasha last night, snapchat filed a current report with the sec. This report was literally one paragraph long, just four sentences, but it had massive ramifications. Snapchat is down 29 in pre-market trading this morning, as i'm recording this video, but snapchat is not the only company taking a hit. It has dragged everything else with it.

Facebook is seven percent down, pinterest is 13 down. Twitter is down four percent after it already got battered two weeks ago. Even google is not immune. Alphabet stock is also trending down about four percent in pre-market trading and many other companies are following suits.

So what the hell just happened, and is it about to get a whole lot worse? Well, here is what snapchat filed with the sec last night. They have made an urgent disclosure which says, since we issued guidance on april 21st, 2022. The macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted ebitda below the low end of our q2 2022 guidance range, and this sounds really bad.

It is unusual somewhat for companies to issue this type of disclosure, even if you are headed for a bad quarter, so i am guessing the numbers. There are substantially down and way below their previous guidance. Now, in the q1 filing snapchat estimated, the revenue would grow between 20 and 25 percent in q2 and they guided for an adjusted ebitda of 50 million dollars. So it sounds like the real issue.

Here is the revenue, because adjusted ebitda is going to dip hard if revenue falls below expectations, because the majority of the costs are not really a function of revenue for a company going through this kind of growth. The low end of the guidance for snapchat was 20 increase on q2 2021, which would mean a revenue total of about 1.179 billion dollars. So now, almost two months into the quarter, they are saying they are pretty sure they are not going to get close to. That number - and it's not a good look because we're only a month down the line from when the q1 results were announced when they made that guidance.

So it seems to the stock market like this is a very sudden reaction, and the market thinks this might be a leading indicator. This announcement by snapchat might just be the first sign that the economy is really slowing down or maybe yet another sign, depending on how you look at it, and all the other companies are just going to go and follow suit. They're all going to suffer. We just don't know it yet, but here is the problem.

If i go and look at snap's quarterly performance on seeking alpha, i can see that revenue is being slowly consistently growing quarter after quarter, but then suddenly it went undipped in march now, q1 is usually the lowest quarter of the year for advertising revenue. So that isn't much of a surprise and in fact the exactly the same thing happened in q1, 2021 and in q1 2020. But here are the same numbers shown as the year on year: growth percentage. You can see here that during the pandemic, snapchat first took a dip in q2 2020, as advertisers first pulled out in panic, and then it absolutely smashed it from there and on the surface it kind of looks pretty bad.

The growth at the moment just keeps on dropping every quarter. Look. It was 116 percent year on year, in q2, 2021, 57 in q3, 42 in q4 and down to 38 in q1, and now they are saying they won't even hit 20 in q2, and the stock market is absolutely imploded, because the natural conclusion of a typical wall Street analyst, who appears to be incredibly numerically challenged, is that snapchat is folding in on itself and collapsing. The numbers are crashing, q2, growth is less than 20, so q3 is probably gon na be five or ten percent q4 is going to be zero and next year snapchat is going bankrupt because the analysts drew a chart of the year and year increases and in their Infinite wisdom drew a line through it.

Yes, science and the next brain thought that came out of that wall. Street analyst is that the reason for this collapse is because advertising revenues are folding. Snapchat makes their money from ads. Pinterest makes their money from ads.

Facebook, twitter and even google all make their money from ads so time to panic and sell all of them in double time before they go bankrupt. Now, after saying that, snapchat then said we remain excited about the long-term opportunity to grow our business. Our community continues to grow and we continue to see strong engagement across snapchat and continue to see significant opportunities to grow. Our average revenue per user over the long term and the rest of the stuff in the report is just legal mumbo jumbo that you get in every one of these reports.

So in that paragraph they said hey, we are seeing some short-term headwinds, but we're happy that the long-term prospects are absolutely fine. The great thing about this is that the wall street interpretation here is, in my opinion, somewhat misplaced. Let me explain why here is the year on year, growth again on seeking alpha and by the way, if you want to get yourself 50 off the seeking alpha subscription, i have an affiliate link in the description. I use it for my analysis every day, so feel free to get yourself a discount if you want to get access.

So let's look at what actually is happening with snapchat. If i look at the annual growth rate, you can see that snapchat was growing like crazy. In 2016 and 2017, because we're still early days and then the growth somewhat stabilized at 43 and 45 percent in 2018 and 2019., then 2020 looked like it was kind of roughly the same. But there's more to that story.

If we go and look back at the quarterly data, you can see that q1 2020 was roughly the same 44 growth, but in q2 we saw a collapse down to 17. This is when covid first hit the whole world panicked. Everyone pulled their money from advertising and the stock market crashed in the process, but then by q3 2020 the covert boom started to happen, as everyone was sat at home being bought out of their minds. Every social media company and online services company absolutely exploded.

You know people had nothing better to do so. Q3. We've got 52 percent growth, it's increasing q4 up to 62 percent q1, we're on 66 percent and in q2, 2021 peak covered fear. Second, wave blah blah blah revenue is up bonkers 116 percent year on year now, 116 does look really high, but remember that 116 is relative to the q2 the year before and what happened the year before.

Well, it was that initial collapse. So if you go and take the 17 growth in q2 2020 and then add the 116 growth in 2021 for q2, the average compounded rate of growth in those two quarters was actually 59 and suddenly it doesn't look all that misplaced or all that weird. In fact, it does look pretty much bang on with what we saw through the rest of the code bump, and then we have the lapping effect. This is a super simple effect when you're analyzing company performance, but it is one that dumb wall street analysts seem to never understand, no matter how many times they see it or somebody tries to explain it to them because look in q3 2021, the growth rate drops To 57, but that quarter is being compared to q3 2020, when the growth started going up more than usual and in q4 2021 the rate dropped to 42, but in q4 2020 the growth rate went up to 62 and in q1 this year it dropped to just 38 and in q1 last year it went up to 66 percent, see the pattern here.

So guess what what happened in q2 last year, oh yeah, a hundred and sixteen percent. So when the same quarter last year posted a huge one of bumper quarter, then when you're measuring growth in this year's q2 versus that quarter, suddenly it doesn't look so good, so already had a massive sell-off in snapchat and many other companies for the same reasons when They posted below expectation grade forecasts for these quarters this year, because they're being compared to quarters last year that absolutely exploded and remember that if you combined q2 last year with q2 the year before last year, 2020, the average rate of growth in those two quarters was 59 now, in q2, 2020 the rate of growth was only 17 because of that dip. So if q2 this year misses the 20 mark that they've set and also, for example, hits 17. Then we're still looking at an annualized rate of growth of 59 over the last two years on average, and here is something really interesting, even if this year, the rate of growth is zero.

Nothing, it's exactly the same as last year. The average of zero and 116 is 47 per year, which is roughly the same as the rate at which snapchat was growing for three years before we had the huge covet spike. Now i am not saying that you should go and rush out and buy snapchat shares. That is not the point of this video at all and i don't hold a position on snapchat myself.

I don't like some of their other optics in their business, but the fundamental problem here from my perspective, in terms of the broadest market overall, is a massive misunderstanding of how the compounding effect has accelerated because of covid. This is exactly the same issue that we saw when facebook had the biggest ever one day drop of any stock in stock market history. After their q1 results. Facebook did have other issues and challenges, but everyone just went and saw the numbers slow down in terms of the year on year, growth and threw their toys out of the pram, and the simple fact is: every stock that has benefited disproportionately during 2020 and 2021 is Still currently lapping those quarters - i know it feels like all of that was a million years ago now, but the omicron variant only arrived at the end of q4 last year and back in q4 we saw more log, downs, cancellations, businesses being restricted or shut down, and Stay at home orders and all that kind of stuff in the us and many other countries around the world, and there was a huge push for people to get their booster jabs.

Remember all that that was only four to five months ago. So in q3, this year and in q4 this year and in q1 next year we are still going to be lapping, those artificially high quarters from before, which were artificially high because of covet. So when you lap artificially high numbers, the percentage growth figures in the current quarter look lower because a bunch of people who started using your platform or maybe use it a lot more a year ago, are now dropping back off and offsetting that natural, organic rate of Growth and because being a wall street analyst basically has an obligatory requirement to be incredibly bad at maths. We're probably going to have this sort of allergic reaction every single time another company guides lower or misses their earnings after having an explosive rate of growth last year.

In the year before now, don't get me wrong. Snapchat and all the other ad based companies are probably going to face headwinds. If we drop into a recession and go through a prolonged economic downturn, there is every chance that companies will tighten their belts, reduce their marketing budgets, spend less on advertising. There is every chance that there's going to be a reduced volume of output, we may see some kind of decline in the pace of growth.

If that happens, if not some level of stagnation and all of these companies may well be affected some more than others sure, but when these companies are already 60 to 80 percent down in their valuations before that, even materializes this year versus the peaks in january and November, because of the stock market crash overall, the question you've got to ask yourself: is that a proportionate reaction to this potential slowdown and if the slowdown does happen, does it significantly change your outlook for the fortunes of these companies in 10 years time? 15 years time? Maybe even 20 years time, but that's not how wall street thinks and instead panic mode is activated and in three weeks time we're going to have the next inflation update. I know it's been a little while, which is looking like it's going to be pretty ugly by the way, then, immediately after that, literally straight after we have the fed meeting where we're probably going to have another interest rate hike, maybe 0.5 percent, maybe even 0.75, depending On how bad the inflation numbers are looking and when you compound these factors together, it is fairly probable that we're going to have this never-ending set of media articles saying the whole world is about to end stocks are going to sell off even more. We we're about to enter the worst recession in history, blah blah blah, and i will be sitting here picking up the bug and bin discounts, while everyone else seems to be panicking and operating in peak fear mode. If you found this video useful, please don't forget to smash the like button for the youtube algorithm.

Thank you very much. I really really appreciate everyone who watches all the way to the end and as always i'll see you guys later.