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Snap Plunge Spooks Social Media Stocks

Snap Plunge Spooks Social Media Stocks
Social Media Apps | Image by Shutterstock

American camera and social media company Snap Inc., parent company to Snapchat, announced lower revenue targets for the current quarter, resulting in lower stock prices last Tuesday for the company and other social media and digital ad businesses, CNBC reports. There has been little change in the stock since the correction.

The news from Snap came after the stock market had closed the previous Monday and one month after the company had issued prior guidance about the company’s outlook.

In Snap’s earlier report, the company indicated that it expected revenue to grow from 20% to 25% above the second quarter of 2021, CNN reports.

In a filing with the Securities and Exchange Commission, Snap offered an updated assessment that noted the presence of a worsening economy.

“Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated,” Snap indicated.

Snap’s stock price plunged by 40% during the first hour of trading that Tuesday, CNN reports. As of Tuesday, May 31, the stock was still trading below the $17 initial public offering (IPO) price.

After Snap signaled the alarm, Bloomberg reports, social media stocks plunged more than $160 billion in market value last Tuesday, adding to an already stressed sector suffering from stalled user growth and rising costs.

CNN reports other affected companies included Facebook (Meta), Pinterest, Roku, and tech giants Alphabet (Google) and Amazon.

In addition to the declines for social media and digital ad companies, the overall Nasdaq index plunged by over 400 points last Tuesday after rising by 181 on Monday, MarketWatch indicated.

CNN said Snap’s CEO Evan Spiegel sent a memo to employees saying that while hiring will slow down, the company is still expected to hire over 500 people by the end of this year.

The negative news for Snap continues a dramatic slide from the company’s peak last September when the stock price rose above $83 per share. That steep drop took hold in late October after the company’s reported earnings were lower than expected.

In that instance, The New York Times reported, Snap said that the company’s ad revenues had been negatively impacted by the changes made by Apple concerning privacy rules.

Snap was founded in 2011 and went public six years later. While the current decline in the economy is the chief reason for the continuing struggles for the company, Fortune reports it is not the first time Snap has faced challenges.

Within weeks of its March 2017 IPO, critics claimed that the company was a flop on Wall Street.

TechCrunch reported negative comments about Snap continued for more than two years as the stock price slowly fell to below $5 in December 2018. Its stock price eventually rose, surging during the COVID-19 pandemic over the 18 months between March 2020 and last September, according to MarketWatch.

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