A profit warning from Snapchat's developer has sent the company's shares crashing nearly 40% in early trading, triggering the latest in a series of stock market routs that has wiped billions from the value of social media companies amid fears their revenues will be hit by a global economic downturn.
"Since we issued guidance on 21 April 2022, the macroeconomic environment has deteriorated further and faster than anticipated," the company said in an SEC filing published on Monday evening. Snap said it now expected second-quarter revenue and earnings below its guidance range, and told staff it would slow the hiring of new recruits.
The company's profit warning brought its shares down 40% after markets opened, to $13.41, well below the $17 level at which Snap made its initial public offering in 2017. In percentage terms, the fall marked its largest single-day drop ever, with the bad news spilling over to the wider industry: Google's owner Alphabet fell 6%, Facebook 9% and Pinterest more than 20%.
Concerns about a global economic slowdown have seen advertisers curb spending, which has knocked the valuations of tech companies that rely on marketing spend for the bulk of their revenues.
In a note shared with employees on Monday, the Snap chief executive, Evan Spiegel, warned: "Like many companies, we continue to face rising inflation and interest rates, supply chain shortages and labour disruptions, platform policy changes, the impact of the war in Ukraine, and more."
Spiegel said the company would continue to invest in growth, and planned to hire more than 500 new team members before the end of 2022, a 10% increase in headcount. However, he added that department heads had been asked to find cost savings in their budgets.
"Our most meaningful gains over the coming months will come as a result of improved productivity from our existing team members, as we work together and help our new team members get to know Snap and learn how to contribute to their full potential."
For Snap, the profit warning is a sharp reversal in fortune. It was only in early February that the company announced its first ever quarterly net profit, a piece of good news that stood in stark contrast with Facebook's announcement the day before that its revenue would shrink by $10bn over the course of the year thanks to privacy-focused changes in Apple's operating system for mobile phones.
Snapchat's advertising products were largely protected from those changes, with the company's focus on brand advertising rather than hyper-targeted personalised promotions, meaning it has less reliance on tools to track users across the web and in other apps.
