Santa Monica The makers of the photo app Snapchat have shocked investors with cashed-up forecasts for the current quarter: the stock plunged by about 31 percent in after-hours trading. It is likely that the targets for sales and operating profit will be missed, the company Snap announced on Monday (local time). Since the forecast a month ago, the economic environment has deteriorated further – and faster than expected.
Snap relies on advertisers being willing to spend money on different types of ad products on the platform. In times of economic uncertainty, they often become more restrained.
Snap had already struck a cautious tone in April after business was slowed in the first quarter by the Russian war of aggression in Ukraine, among other things. The warning now reveals a rapid deterioration in business. Snap had such a strong start to the year that there was still a 38 percent increase in sales in the first quarter – although many advertisers had temporarily stopped their campaigns after the Russian invasion. Snap then only expected growth of 20 to 25 percent for the current quarter, as the company was already anticipating headwinds, including inflation concerns. But even this expectation will probably be missed.
Co-founder and CEO Evan Spiegel now wants to save more. For example, he announced fewer new hires in an e-mail to the employees, as reported by the “Financial Times” and the tech blog “The Verge”, among others. Managers should also check their areas for possible cost reductions.
Snapchat had become known above all for pictures that disappear by themselves, but has now also become a platform for shopping and media content. In particular, Snap relies on the so-called augmented reality (AR). The technology involves integrating digital content on the screen into the real environment. Snapchat lets consumers try out shoes or cosmetics virtually – and takes money from the companies for it.
Investors quickly get nervous about Snap shares. For example, they dropped the price by a quarter last fall after the company was hit harder than expected by Apple’s tightened data protection regulations on the iPhone. Even if a counter-movement followed after the first quarterly profit at the end of the year: a year ago, the stock was still trading at over $ 60, now in after-hours trading at only $ 15.51.
Investors also suspected mischief for other tech firms that depend on ads, given Snap’s problems. For example, Facebook shares fell by around seven percent in after-hours trading and Google parent Alphabet’s paper by a good three percent.