Snap Stock Plunges On FTC Escalating AI Chatbot Complaint To DOJ, TikTok Ban Uncertainty: Retail Mood Deflates

Snap stock fell sharply on Thursday, with the uncertainty around the TikTok ban and the Federal Trade Commission (FTC) elevating to the Department of Justice (DOJ) a complaint concerning the Snapchat parent’s its artificial intelligence (AI) chatbot weighing down on sentiment.

The Snap stock declined 5.24% to $11.22 with slightly above-average volume, yet it is up a little over 4% so far in January.

In a statement, the FTC said, “The complaint pertains to the company’s deployment of an artificial intelligence-powered chatbot, My AI, in its Snapchat application and the allegedly resulting risks and harms to young users of the application.” 

The agency note that its investigation following a 2014 settlement with Snap found violations of an FTC Act regarding “unlawfulness, power to prohibit unfair practices.” Therefore, the commission voted to refer the complaint to the DOJ.

Although the FTC doesn't need to disclose the referral, it said it is doing so in the public interest. The decision to disclose the escalation was adopted by a 3-0-1 vote, with Commissioners Melissa Holyoak and Andrew Ferguson recorded as absent.

The FTC also shared a statement from Ferguson that said the move to make the referral public was “unusual.” “I did not participate in the farcical closed meeting at which this matter was approved but I write to note my opposition to this complaint against Snap,” he said.

In the past, Snap has faced backlash over allowing the use of its app by teens to purchase fentanyl-laced pills. 

As per the third-quarter results released in late November, the company had about 443 million daily active users at the end of the quarter.

On Stocktwits, retail sentiment toward Snap stock turned ‘bearish’ (43/100) from the ‘extremely bullish’ mood that prevailed a day ago. The deterioration in sentiment is accompanied by ‘high’ message volume levels. The 24-hour message count spiked over 55,000%.

A retail watcher of the stock panned it as a “dead investment.”

Another attributed their bearishness to expectations that a TikTok ban may not materialize.

Snap stock declined over 36% in 2024 versus S&P 500’s 25% gain. The company is scheduled to release its fourth-quarter results after the market closes on Feb. 4.

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