Shares of Snap (SNAP), the parent company of the instant messaging app Snapchat, declined over 5% on Thursday’s regular trading session. The fall came after the Federal Trade Commission (FTC) said it would escalate a complaint against the company to the Department of Justice (DOJ).
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The FTC’s investigation suggests potential violations of consumer protection laws by Snap, particularly concerning the deployment of My AI within the Snapchat application. The complaint alleges that Snap’s chatbot poses significant risks and harm to young users.
In its defense, Snap has denied any wrongdoing and maintained that the chatbot incorporates robust safety and privacy measures. The company also said that the FTC lacks concrete evidence to support its claims.
FTC Is Not Alone in Raising Concerns Over Snap’s My AI
In addition to the FTC’s complaint, Snap’s My AI chatbot has faced other criticisms. Users have reported that at times the chatbot provides inappropriate advice, such as tips on hiding the smell of alcohol and marijuana. In addition, there have been concerns about inadequate data protection measures, especially for younger users, raising questions about user privacy and safety.
Further, the U.K. Information Commissioner’s Office (ICO) raised concerns about the chatbot’s data protection practices. In October 2023, the ICO stated that Snap failed to properly assess the privacy risks posed by My AI, especially to children aged 13 to 17. Also, the ICO found that Snap failed to identify and mitigate potential data protection issues. Post which, Snap was made to conduct a review and took necessary steps to comply with data protection laws.
Investors should note this escalation by the FTC marks a major step in its investigation into Snap’s practices and could potentially lead to legal action against the company.
Is Snap a Buy or Sell?
Turning to Wall Street, SNAP stock has a Hold consensus rating based on seven Buys, 19 Holds, and one Sell assigned in the last three months. At $13.67, the average Snap price target implies a 21.8% upside potential. Shares of the company have declined 23% over the past six months.
