Snap’s share slump spread to other internet and advertising stocks, with Meta Platforms Inc falling 9.6%.
Snap Inc. plunged as much as 40% on Tuesday morning, dipping below its initial public offering price after the social media company cut its revenue and profit forecasts as it grapples with a wide range of macroeconomic issues.
“Like many businesses, we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, platform policy changes, ‘impact of war in Ukraine, etc.,’ Chief Executive Evan Spiegel said in a memo to staff on Monday. The company will also slow down hiring.
Snap posted its biggest intraday decline since its IPO in March 2017, falling to $13.55. Snap’s share slump spread to other internet and advertising stocks, with Meta Platforms Inc. falling 9.6%. The major advertising companies also fell, with WPP Plc losing 3.9% in London.
In total, social media stocks were on course to lose more than $100 billion in market value after Snap’s announcement.
Snap benefited from a surge in usage of its Snapchat app during the pandemic, when people sought entertainment and connection from home. Now, as people return to offices and schools, the company is reeling from the same combination of economic pressures also facing its competitors.
Snap will add 500 positions by the end of the year, in addition to the 900 jobs already offered this year. That compares to about 1,800 new employees added in 2021. Meta and Uber both cut hiring speeds, after warning of rising cost of doing business.
“The macroeconomic environment has deteriorated further and faster than expected,” Snap said in a filing. “As a result, we believe it is likely that we will report revenue and Adjusted Ebitda below the low end of our guidance range for the second quarter of 2022.”
The company’s second-quarter guidance for 20-25% year-over-year revenue growth was already below analysts’ estimates. The warning immediately hit other ad-dependent businesses, including Twitter Inc., Alphabet Inc. and Pinterest Inc.
Companies “have to bring these unrealistic and unrealistic investor expectations back to earth,” Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, told Bloomberg Television on Monday. “Underlying growth is slowing as these companies mature and become more competitive.” Suzuki’s company, which manages about $15 billion in assets, does not own Snap shares directly.
The platforms are all competing for ad dollars at a tough time. Advertisers are dealing with a fragile economy as well as recent privacy changes, such as Apple Inc.’s tracking restrictions, which have slowed businesses that were booming through much of the pandemic.
Last month, Meta, Facebook’s parent company, cut spending due to the macro environment. Twitter recently announced a hiring freeze and other cost-cutting measures to try to save money. “The global macro environment has become less supportive, the war in Ukraine has impacted our bottom line and may continue to do so,” Twitter chief executive Parag Agrawal said in an email to employees. “Many other companies have experienced a similar effect.”
Spiegel told staff that business leaders had been asked to review spending, to see if there were other areas worth cutting. “Our most significant gains over the next few months will come from improving the productivity of our existing team members,” he wrote.
–With help from Ed Ludlow.