What's going on?
Social media company Snap Inc. said late on Tuesday that it was being investigated by US authorities – and its shares fell 5% on Wednesday, compounding the miserable run it’s had since… pretty much ever (tweet this).
What does this mean?
The investigation relates to Snap’s initial public offering (IPO) back in March 2017, and allegations that it misled potential investors. When a company wants to IPO, it has to provide information on its strategy, projected performance and so on, so that investors can fully understand the risks and rewards involved if they decide to buy that company’s stock.
Investors have long claimed that, among other things, Snap made misleading statements about the impact competition – especially Instagram – was having on its growth. Now, their lawsuit against the company has prompted US regulators to formally request information from Snap – adding to an already bad week in which the company lost yet another senior exec.
Why should I care?
For markets: Competition is crackling Snap.
Since peaking earlier this year, Snap’s daily active user numbers have fallen to 186 million – impressive, but not a patch on the 400 million Instagrammers (and growing) posting brunches, lunches, and fun-with-the-bunches on their Stories each day. Even if they didn’t realize it at the time of the IPO, investors have since seen the way the wind is blowing – sending Snap’s shares down 75%.
The bigger picture: Being a disruptor no longer guarantees success.
It wasn’t so long ago that promising “disruption” meant an avalanche of interest from investors no matter what business you were in. Now, the slumbering giants of various industries have begun to stir, starting a race to see who can innovate the fastest and provide consumers with solutions they actually want. In banking, for example, established players have been investing heavily in their online and fintech products to compete with upstart challengers, while in retail long-established stores are getting better at battling new platforms online…