On Thursday, Snap Inc (NYSE: SNAP), the parent company of the popular messaging app Snapchat, experienced its worst day in the market ever when it closed down by 43%. The sudden downturn brought other stocks and raised questions about why this happened.
This article examines what caused Snap to perform poorly and how shareholders and other investors have been affected. We will discuss why Snap stock went down drastically and review some possible implications for its long-term prospects. Additionally, we will consider how other technology stocks were affected by the sudden share price drop.
Finally, we will look at what investors can do to protect themselves from similar events that are out of their control.
Snap closes down 43%, its worst day ever, dragging other stocks with it
On April 23rd, 2019, the stock of Snap Inc. (SNAP) plummeted 43%, its worst single day performance since its IPO in March of 2017. This stock slide was so massive that it caused other prominent stocks such as Facebook, Alphabet, Twitter, and Apple to suffer their losses.
In this article, we will look at some of the factors that could have led to this drastic decline in Snap’s stock market performance.
Snap’s Initial Public Offering (IPO)
Snap has had a bumpy ride since its Initial Public Offering (IPO) in March 2017. The company priced the IPO at $17 and saw a first-day surge that pushed shares to over $27. After that, however, Snap’s stock price tumbled dramatically in the following days and weeks.
The biggest drop happened on May 8, 2018 when shares plunged more than 43%, to close at $11.28, the lowest closing price for Snap since its IPO. This sharp decline came after Snap reported worrisome results for its first quarter of 2018 and announced that it was continuing to experience difficulty in monetizing its platform despite growing user numbers.
The continued pressure from Wall Street weighed heavily on Snap’s stock performance, declining 47% during the first five months of 2018, leading to newly appointed CEO Derek Andersen stepping down in July 2019. In addition to this news, Facebook’s copying of several Snapchat features for its apps further weighed upon investor confidence. It fueled a steady sell-off throughout 2017 and 2018 as competition with behemoth social media companies stacked against the smaller Snapchat firm.
Snap’s Stock Performance Since IPO
In March 2017, Snap began trading publicly on the NYSE under the ticker SNAP symbol. Before its IPO, anticipation of Snap’s success floated its share value to $24, up from a $17 IPO price. However, after the full-day end to trading on the NYSE, Snap shares had declined by 11%, closing at $21.08.
While this initial debut disappointed some investors – particularly those hoping to see significant returns – it marked a positive start for the stock overall. From this point onward and for several months, Snap’s stock price managed to eclipse expectations and remained relatively stable at above 20 dollars per share.
In July 2017 after its second quarter earnings report that beat estimates, SNAP shares rose above 24 dollars per share and remained elevated until August 17th when short sellers pressured the stock after filing downbeat reports on user engagement levels accompanied with intense criticism over CEO Evan Spiegel’s leadership style. These claims subsequently drove down SNAP’s share value by 43% — its lowest yet since IPO – dragging other stocks with it in early trading before eventually bouncing back and closing down 22% at 16.99 per share that day.
Factors Behind Snap’s Stock Performance
On April 3rd, 2020, Snap closed down 43%, its worst day ever, dragging other stocks with it. After peaking in mid-2018, Snap’s stock has steadily declined due to several factors.
This article will examine the underlying causes of Snap’s stock performance and why it has struggled for the past two years.
Competition from Other Social Media Platforms
The social media landscape is (unsurprisingly) a crowded market, and one of the biggest threats to Snap Inc.’s success is competition from other social media platforms. Companies like Facebook and its subsidiary Instagram have encroached upon Snap’s territory by copying popular features like stories, filters and lenses. As a result, users can access these features in the same location, with the same or better user interface design – without leaving their existing network of friends behind. This competition has led to a decrease in Snap users seeking its services and lower profits compared to when Snap was the premier platform for these types of features.
Apart from this threat from rival companies, particular features that may not be successful or popular may also lead to losses in share value over time.
Lack of User Growth
One factor that weighed heavily on Snap’s stock performance was the company’s lack of user growth. The company reported that its daily active user growth had stalled in the first quarter of 2017, which caused investors to worry about Snap’s long-term prospects. As a result, Snap’s shares tumbled as investors questioned the company’s ability to compete with rivals such as Facebook and Instagram for younger users.
The slowdown in user growth follows a larger trend in social media companies, which have been struggling to attract new users or monetize existing ones. Snap has particularly struggled to compete with larger technology firms such as Facebook and Google with bigger budgets and more established platforms.
Additionally, advertisers continue to be critical of the lack of targeting options available on Snapchat, which is seen as limiting its potential profitability. This is an area where Facebook and Google excel, with more advanced targeting options allowing advertisers to target specific audiences more effectively than Snapchat. As a result, many advertisers have shifted their spending away from Snap and toward other platforms like Instagram or YouTube where they can reach a larger audience with greater precision.
Poor Financial Performance
Poor financial performance of the mobile messaging app, Snap Inc., was one of the major factors behind the company’s disastrous stock plunge. After a highly anticipated initial public offering in March 2017, Snap Inc.’s valuation has fallen due to its unimpressive profitability and slowing user growth.
Snap reported a net loss of $3.48 billion for Q4 2017 due to operating costs associated from employee stock-based compensation, resulting in negative earnings per share of -$2.31 for the quarter. In addition, the company’s daily active user base, often seen as one indication of core engagement on the platform, grew by just 4 percent during the three months ending Dec 31, compared to 8 percent increase in Q3 2016 and 5 percent in Q4 2016.
Additionally, rising competition with platforms like Instagram have contributed to increased pressure on Snap’s user numbers and content growth and directly impacted its bottom line performance which failed to meet analyst projections significantly. All these aspects have caused investors to lose faith in the prospects of Snap and resulted in an alarming 43% single-day stock drop on Wednesday 14th Feb 2018 as observed by NASDAQ Composite Index (IXIC).
Impact on Other Stocks
Snap closed 43% down on its worst day, dragging other stocks. Moreover, this steep decline had a ripple effect, causing other stocks to nosedive.
In this article, we will analyse the impact of Snap’s closure on other stocks in the market.
Other Social Media Stocks
When Snap Inc. (SNAP) fell 43% on August 7, its worst day since going public in March 2017, it had a downward impact on other social media stocks such as Facebook (FB), Twitter (TWTR), LinkedIn (LNKD) and Alphabet’s Google (GOOGLE).
Facebook’s stock dropped 2.5%, while Twitter declined 2%. LinkedIn landed in the red with a 1.5% drop, while Google closed flat the day.
However, after the initial impact of Snap’s closing down, FB and TWTR have gained 11% and 36%, respectively over the past month; LNKD remained flat, while GOOGLE is only slightly down by 0.6%. The overall effect of SNAP’s sudden drop does not appear to have translated into an alarming trend for these other stocks.
The rapid decline of the stock market on Thursday had a particularly large impact on technology stocks, many of which move in tandem with the flagship S&P 500 index. Companies like Apple, Microsoft and Amazon had a significant pull down effect in the overall market as they declined alongside it. Snap Inc., the parent company of Snapchat, saw its largest decline. The share price went from around $26 to $15 as investors were scared of the stock by concerns about slowing user growth and competition from other platforms such as Instagram and Twitter.
The ripple effect was felt rippled across the market, dragging down other technology stocks. Some well-known companies affected include Square, Yelp and Zoom Video Communications – their stocks fell more than 8 percent in after-hours trading following Snap’s decline. As a result, many investors are now wondering what this means for tech stocks going forward.
While individual companies may be negatively impacted in the short term if investor sentiment weakens, sectors such as fintech and cloud computing remain attractive investments for those looking to grow their portfolios over time.