Snap Inc. revealed that the economy had degraded faster than it expected, which compelled it to cut its quarterly prediction and eventually sparked an after-hours sell-off. The company shares fell 31%, pulling down shares of other social media and internet companies such as Alphabet which were down 3.6%, with Amazon trading at 2.2% lower.
Recently, U.S. stocks managed to perform better owing to considerable gains recorded by technology and banking majors. Although it is worth noting that the recovery happened after Wall Street's largest weekly fall since the dot-com implosion more than two decades ago.
According to seasoned experts, Snap is a proxy for online advertising, and when it shows signs of weakness, it could impact Facebook, Pinterest, and Google as well.
In a recent memo, Snap CEO Evan Spiegel told staff that the business will restrict recruiting this year and listed out a long list of issues. He also added that like many other businesses, the company is being impacted by supply chain bottlenecks, growing inflation and interest rates, workforce interruptions, platform policy regulations, and the impact of Ukraine conflict among others.
This also comes after organizations including Facebook’s parent Meta Platforms and Uber Technologies revealed earlier this month that they would cut costs and hire fewer people. This compelled Snap to assess this year’s budget and has requested leaders to review spending to discover more cost savings.
Amidst this uncertainty, the company has predicted second-quarter sales growth of around 25% over the last year. On the other hand, Zoom Video Communications Inc gained 0.9% after increasing its full-year earnings outlook due to increased enterprise demand.
Economic activity in the United States has slowed moderately as increased prices have dampened demand for services, while fresh supply bottlenecks have impeded factory production following the COVID-19 lockdowns in China and the continued conflict in Ukraine.