Hedge Funds Were Right About These 5 Sinking Stocks

1. Snap Inc. (NYSE:SNAP)

Number of Hedge Fund Shareholders: 54

Year-to-Date Returns: -78.9%

Topping the list is social media company Snap Inc. (NYSE:SNAP), whose shares have imploded by 79% in 2022 as TikTok eats into its market share among the coveted teen demographic. Hedge funds bailed on SNAP during the past two quarters, as there’s been a 32% drop in ownership of the stock. Philippe Laffont’s Coatue Management and Amish Mehta’s SQN Investors are among the many funds that have ditched their SNAP holdings.

Like Meta, Snap Inc. (NYSE:SNAP) is being done in by the unstoppable popularity of TikTok, as well iOS privacy changes that have dented the social media platform’s advertising effectiveness. Compounding matters is that advertising spending is also falling. Snap’s weakening ad demand in Q2, which contributed to its Adjusted EBITDA crumbling by 94% to $7.2 million during the quarter, looks even worse in light of the subsequent strong ad results for Google Search, which grew revenue by 13%.

The Baron Opportunity Fund cited some of the challenges impacting Snap Inc. (NYSE:SNAP) in its Q4 2021 investor letter, but believed the company was still a good long-term investment:

“Snap Inc. is the leading social network among teens and young adults in North America and a growing number of overseas markets, including Western Europe and India. Shares fell this quarter on a greater-than anticipated impact from Apple’s new privacy changes for iOS mobile devices. These changes made it more difficult for Snapchat to measure the effectiveness of ads shown on its platform. We believe this is a near-term, industry-wide issue for which Snap is already developing a solution. Longer term, we continue to view Snap favorably as the company sustains its rapid pace of product innovation and expands its premium partnerships with advertisers.”

For more of the latest stock picks worth considering for your portfolio, check out Cathie Wood Dumped These 7 Stocks in July and 10 Defensive Restaurant Stocks to Buy Amid Recession Fears.

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