What Is Snap? Stock Plummets Over 40% After Issuing Stark Warning on Market: See Why The social media company issued a profit warning to investors in a SEC filing earlier this week.

By Emily Rella

entrepreneur daily
BigTunaOnline | Shutterstock

Talk about a low Snap score.

Snap, the parent company of popular social media platform Snapchat, saw stock prices plummet nearly 32% in premarket trading on Tuesday after a stark SEC filing authorized by Snap CFO Derek Andersen issued a profit warning to investors.

"Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated," the filing reads. "As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range. We remain excited about the long-term opportunity to grow our business. Our community continues to grow, and we continue to see strong engagement across Snapchat, and continue to see significant opportunities to grow our average revenue per user over the long term."

This, in turn, sent the stock prices of several other major tech companies tumbling as a side effect, as Snap's guidance could (and should) be indicative of a larger problem within the industry.

Related: 7 Brands That Are Killing It on Snapchat

What is Snap and who owns it?

Snap Inc. was originally dubbed Snapchat Inc. when it was founded in September 2011 by Evan Spiegel, Bobby Murphy and Reggie Brown.

The company rebranded to Snap Inc. five years later in September 2016 in order to include additional product offerings under its brand name, namely the company's newly unveiled smart glasses called Spectacles as well as the ever-popular cartoon avatar creator called Bitmoji.

However, prior to this, Spiegel and Murphy settled a lawsuit with Brown who claimed that he was an equal partner in the app and deserved credit for the original concept of Snapchat though Spiegel and Murphy claimed they saw Brown as an "intern" and accused the lawsuit of being opportunistic in nature. The case was settled for $157.5 million in September 2014.

On March 1, 2017, Snap Inc. raised a near $24 billion valuation in its IPO before debuting on the NYSE the next day under SNAP.

Related: 'Snap' to It: 5 Tips to Improve Your Snapchat Marketing

Spiegel and Murphy currently own a combined 95% of Snap Inc., Spiegel owning 48% of company shares and Murphy having 47%.

Snap Inc. is not to be confused with SNAP benefits, which help lower-income individuals and families with benefits that are loaded onto an EBT card.

Why is this news affecting other social media companies?

Snap data reporting and its profit warning is having a major effect on the market of other big-name tech companies like Meta (which was down over 7% premarket on Tuesday), Google (around 4% decrease) and Pinterest, which dipped over 14% in the same time period.

Simply put, what affects one will affect the other — rising rates of inflation and supply chain issues including a smaller labor market have affected all major companies, especially those with a large U.S. and global market.

In Snap CEO Evan Spiegel's internal memos to employees on Monday, the company founder shed a bit of light as to what exactly is going on and why revenue estimates are forecasted to be so low.

"Like many companies, we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, platform policy changes, the impact of the war in Ukraine, and more," Spiegel wrote. "Responsibly managing our expenses will allow us to invest through this period of time and emerge stronger as a business. Moving forward, we will be taking steps to reprioritize our investments – continuing to invest across our business priorities, but in many cases doing so at a slower pace than we had planned given the operating environment."

What does Snap plan to do?

In Spiegel's memo, he went on to reveal that though the company is not in a hiring freeze (the company still plans to hire 500 new employees by the end of 2022, the company plans to "slow our pace of hiring for unopened roles" and deprioritize other planned hiring that was set to take place this year.

"We will continue to backfill existing positions that become available as a result of attrition if those roles remain a high priority for our teams," Spiegel explained. "We will also evaluate the remainder of our 2022 budgets and leaders have been asked to review spending to find additional cost savings."

As of early Tuesday afternoon, Snap Inc. continued to plummet over 40% in a 24-hour period and nearly 79% year over year.

Emily Rella

Entrepreneur Staff

Senior News Writer

Emily Rella is a Senior News Writer at Entrepreneur.com. Previously, she was an editor at Verizon Media. Her coverage spans features, business, lifestyle, tech, entertainment, and lifestyle. She is a 2015 graduate of Boston College and a Ridgefield, CT native. Find her on Twitter at @EmilyKRella.

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