Snapchat stocks fall 40% after profit warning issued

Snap shares were trading at $13.3, lower than their 2017 IPO price of $17.

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, New York, US on March 2, 2017. (photo credit: REUTERS/LUCAS JACKSON/FILE PHOTO)
A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, New York, US on March 2, 2017.
(photo credit: REUTERS/LUCAS JACKSON/FILE PHOTO)

Snap Inc SNAP.N shares plunged more than 40% and sparked a sector-wide selloff on Tuesday after a profit warning from the Snapchat parent signaled tough times ahead for the once-booming digital ad industry.

The company was on track to lose $15 billion in market capitalization, while shares of major online advertisers and social-media firms were set to lose a combined $200 billion in value from the rout.

Meta Platforms FB.O, Pinterest PINS.N, Twitter TWTR.N and Google-parent Alphabet GOOGL.O were all down between 7% and 24%.

Snap said on Monday it was expecting to miss quarterly revenue and profit targets set just a month earlier and would have to slow hiring and lower spending.

The bleak view from one of the sector's well-known names underlines the impact of the Ukraine war, surging inflation and rising interest rates on social media companies just when they were trying to shake off the hit from changes to Apple's iOS operating system. 

 Snapchat app is seen on a smartphone in this illustration taken, July 13, 2021.  (credit: REUTERS/DADO RUVIC/ILLUSTRATION) Snapchat app is seen on a smartphone in this illustration taken, July 13, 2021. (credit: REUTERS/DADO RUVIC/ILLUSTRATION)

"Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook, Pinterest and Google," said Dennis Dick, a trader at Bright Trading LLC.

"Once you start thinking about Google, that's when the markets start to sell off."

Tuesday's selloff comes days after a Bank of America fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.

Snap shares were trading at $13.3, lower than their 2017 IPO price of $17.

Analysts said Snap's outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52% in the prior quarter.

"There's a lot to deal with in the macro-environment today," Chief Executive Officer Evan Spiegel said at a tech conference on Monday.