Snapchat
Snap sees quarterly targets at risk – stock crashes
Snapchat icon on a smartphone. Photo: Patrick Seeger/dpa
© dpa-infocom GmbH
After the Ukraine war put a damper on Snapchat’s advertising business, the forecasts for the current quarter are already cautious. But even they can’t be kept.
The makers of the photo app Snapchat have shocked investors with forecasts for the current quarter. The stock fell more than 28 percent in premarket trading on Tuesday.
The Snap company previously announced that it was likely that sales and operating profit targets would be missed. Since the forecast a month ago, the economic environment has continued to deteriorate – 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 reserved.
Snap had already adopted a cautious tone in April after business in the first quarter was slowed down by the Russian war of aggression in Ukraine, among other things. The warning now reveals a rapid deterioration in business. At the start of the year, Snap was so strong 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. For the current quarter, Snap then only forecast growth of 20 to 25 percent, as the company was already expecting headwinds from inflation concerns, among other things. But even this expectation is likely to be missed.
Co-founder and boss Evan Spiegel now wants to save more. In an email to employees, he announced fewer new hires, as reported by the Financial Times and the tech blog The Verge on Monday. Managers should also check their areas for possible cost reductions.
New features attract advertisers
Snapchat was primarily known for images that disappear on their own, but it is now also a platform for shopping and media content. In particular, Snap relies on what is known as augmented reality (AR). The technology integrates digital content on the screen with the real environment. Snapchat lets consumers try out shoes or cosmetics virtually – and takes money from the company for it.
Investors quickly get nervous about Snap stock. 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 the first quarterly profit was followed by a countermovement at the end of the year: a year ago the share was still quoted at over 60 dollars, now in after-hours trading it is only 15.51 dollars.
Investors also suspected tragedy for other ad-dependent tech companies given Snap’s woes. Facebook shares fell by around seven percent in after-hours trading and Google parent Alphabet’s stock fell by a good three percent.