TSLA and SNAP Stocks Retreat: A Closer Look at the Factors at Play
Thursday, Jan 16, 2025 12:58 pm ET
4min read The stock prices of Tesla (TSLA) and Snap (SNAP) have been on a downward trajectory in recent days, with investors grappling with a mix of company-specific challenges and broader macroeconomic concerns. As of Tuesday, shares in Tesla had declined 69 percent in 2022, while Snap's stock fell around 30 percent in after-hours trading on Tuesday following the company's earnings report. Let's delve into the factors driving the retreat of these two prominent tech stocks.
Tesla (TSLA): Regulatory Scrutiny and Economic Uncertainty
Tesla's stock has been plagued by a series of regulatory investigations and economic headwinds. The National Highway Traffic Safety Administration (NHTSA) has launched a probe into 2.6 million vehicles equipped with the "Actually Smart Summon" feature due to reports of crashes where vehicles failed to detect obstacles. This investigation, along with another one opened in October regarding the Full Self-Driving software, raises concerns about the safety of Tesla's autonomous technology and could lead to recalls or updates, posing challenges to the company's self-driving ambitions.
Moreover, an analyst at Bank of America (NYSE: BAC) downgraded Tesla stock from 'Buy' to 'Neutral' while raising its price target from $400 to $490. Although the new target reflects potential upside, BOFA cited valuation concerns and execution risks as reasons for the downgrade. The analyst noted that Tesla's stock already accounts for much of its long-term potential in core automotive, robotaxi, Optimus, and energy solutions, and that challenges like execution risks, policy uncertainty, and a potential capital raise tempered their enthusiasm.
Weak Q4 2024 deliveries also raised concerns about Tesla's ability to maintain its growth trajectory. The company's vehicle deliveries for the last quarter of 2024 failed to meet consensus estimates, which could indicate a slowdown in demand or production issues.
Snap (SNAP): Economic Uncertainty and Apple's Privacy Changes
Snap executives cited supply-chain issues and privacy changes implemented by Apple on its iOS platform as significant challenges to the company's advertising business. The supply-chain issues have led other companies to cut back on advertising, while Apple's privacy changes have made it more difficult for Snap's advertising partners to measure and manage their ad campaigns for iOS devices.
Snap missed revenue expectations in its Q3 results, which was partly attributed to the challenges posed by Apple's privacy changes. This has raised concerns about the company's ability to maintain its revenue growth and meet investor expectations. As a result, Snap's stock fell around 30 percent in after-hours trading on Tuesday.
Jefferies analyst James Heaney downgraded Snap from 'Buy' to 'Hold', stating that the Street is overestimating growth in digital ads in 2023 and 2024. The analyst 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. This downgrade reflects the analyst's concerns about Snap's ability to outperform in a weak economic environment.
Macroeconomic Conditions: A Common Factor
Macroeconomic conditions play a significant role in the current market performance of both TSLA and SNAP. Inflation and interest rate hikes have led to a decrease in consumer spending, including on discretionary items like electric vehicles and advertising. Economic uncertainty and potential recession have also affected investor sentiment, leading to a sell-off in growth stocks like Tesla and Snap. Geopolitical tensions, such as the conflict in the Middle East, can also impact the global economy and investor sentiment, affecting these companies' stock prices.
In conclusion, the retreat of TSLA and SNAP stocks today can be attributed to a combination of company-specific challenges and broader macroeconomic concerns. Investors should be cautious when considering these stocks, as the risks and uncertainties are significant. As always, it is essential to conduct thorough research and consider seeking professional advice before making investment decisions.
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