Snap shares take a nosedive

The social company’s CEO has warned that it will miss revenue and earnings estimates.  

Oh, snap! 

We’ve all seen the new Snapchat crying filter. But the tears could well be real for the developers of the app, Snap Inc., after reported earnings in the first quarter fell far below Wall Street’s expectations. While the company still predicted a year-on-year growth in revenue of between 20-25%, the latest news means Snap will need more than a good beauty filter to make things look attractive. 

Why? CEO Evan Spiegel has issued a new update, warning employees that Snap will miss its targets in the second quarter. Plus, he dealt the kicker that the company had that day filed an 8-K with the Securities and Exchange Commission. He said, “We believe it is now likely that we will report revenue and adjusted EBITDA below the low end of the guidance range we provided for this quarter.” 

Spiegel put the company’s slowed growth down to several factors, including supply chain shortages, the war in Ukraine, and rising inflation and interest rates. He also expressed that though hiring wouldn’t be paused completely, the team could expect a real slowdown.  

The financial fallout  

The news of Snap’s situation hit the company – and the entire online advertising market – hard. By close of trading on Monday, Snap shares were down over 50% for the year. After hours, the stock dropped 28% to $16.15. For added ‘yikes’ context: In 2017, Snap made its initial public offering at $17.  

The nosedive in Snap’s shares is the most significant single-day drop ever and has had a serious knock-on effect for related companies. Alphabet fell 6%, Meta fell 7.6%, and image-sharing and social media site Pinterest saw a drop of more than 20%. 

Savvy investors and other tech companies should heed Snap’s warning. The market climate is less than ideal for companies that rely on an advertising model to generate most of their revenue, and things are likely to get worse before they get better.