Shares of most technology companies related to social networks fell this Friday in the premarket, driven by the collapse of the shares of Snap Inc.
The company behind Snapchat saw its stock price drop more than 25 percent after it announced it would have zero revenue growth in the current quarter.
The rest of the social media companies, whose revenues, like Snap’s, rely heavily on digital advertising, saw its valuation precipitate for fear that the business would fall into a deep depression.
To the fall of Snap, those of Alphabet, parent company of YouTube; Meta Platform (Facebook and Instagram), Pinterest and Twitter, which fell between 1.5 and 9 percent in pre-market trading on Friday.
Analysts understand that Snap is facing more and more competition, especially from TikTok, and is not being able to make its business more profitable in a scenario of urgent need to make investments.
Advertising dollars do not arrive in the volume that the company needs and, without dollars, it cannot invest to grow.
To make matters worse, a recession is on the horizon, describe industry experts, warning that 2023 will be worse, because competition will continue to increase.
Snap crashes on ad drop fears
Snap reported this Thursday, October 20, a minimal increase in its income in the fiscal second quarter and forecast that it will not grow in the following quarter.
US stock analysts had expected Snap’s revenue growth of 3.4 percent.
In August, Snap announced that it was going to lay off 20 percent of its employees and that it was going to suspend projects such as games and a flying camera drone due to the need to cut costs and better prepare for the economic crisis.
Snap had hired well above average new workers in 2021, leaving analysts at Jefferies wondering how it will now meet its growth goals with a 20 percent smaller workforce.
Snap shares, trading at $8 this Friday, have given up more than 70 percent of their value in 12 months.
Google, Meta and Pinterest also fell, although somewhat less: between 30 and 62 percent.
Twitter, hand in hand with the attempted purchase of Elon Musk, gained 20 percent in 2022.
Snap Changes
Since it was born in 2011, founded by Evan Spiegel, Bobby Murphy and Reggie Brown, the number of Snapchat users has grown exponentially. That was early on, when it added 100 million users per month in just 45 months.
Subsequent growth was not so meteoric: the social network continued adding users, especially centennials, but not in an explosive way like at the beginning.
Snapchat is especially strong in the United States and among younger people. In that country, 79 percent of users are between the ages of 18 and 24.
Marketing and advertising companies could never resist the allure of Snapchat.
From sportswear to fashion and beauty brands, they promote products and services directly or through influencers.
Until a few months ago, according to estimates in StatisticalSnapchat’s revenues would reach 15 billion dollars in 2027, but the storms of the present cast doubt on these figures.
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