Snap Plunges, And There Goes Social Media’s Online Ad Biz

Investors know that the world doesn’t click for online advertisers right now. In a split second on Monday night, they grasped how dire the situation could be.

Nearly every major player in the sector reported a significant slowdown in ad revenue growth during the recent first-quarter earnings season. All but one actually overlooked Wall Street’s targets for that category. Then, in a surprise announcement, Snap Inc.,

SNAP -43.08%

Snapchat’s parent company, said in a filing Monday afternoon that adjusted revenue and earnings for the second quarter will be lower than the range the company expected a month ago.

Snap’s online advertising business is a fraction of the size of Google, Facebook or even Amazon‘S

AMZN -3.21%

. Still, it’s an ominous note that sounds almost halfway through the second quarter from a company that has never issued a revenue warning before.

In a presentation at an investment conference that brought filings to a halt, Evan Spiegel, Snap CEO, said that “the macroeconomic environment has certainly deteriorated more and faster than we do. expectations.” He also noted that the company will be taking steps like “changing some of our hiring pace.” In an email to employees the same day, shared by sources, Mr. Spiegel added that managers at the company “have been asked to review spending to find cost savings.” additional”.

Shares of Snap fell 43% on Tuesday following Monday’s revelations. Facebook’s parent Meta platform fell 7% on Tuesday on the news, while shares of Pinterest fell 23%. Shares of Alphabet and Google’s parent Twitter fell 5%. Even Amazon, which is just beginning to reveal the size of an online advertising business that now generates nearly $33 billion in annual revenue, saw its stock drop 3% after the warning. by Snap.

Just how bad is it out there? One of Spiegel’s only reassuring revelations is that sales are still growing year over year. Since the forecast for the second quarter is 20% to 25% growth, that leaves a lot of upside. Since it became a public company, Snap’s slowest quarterly growth on record was 17%, witnessed at the start of the Covid-19 pandemic in 2020. The lack of any concrete guidance New bodies show that things could be even worse than that — or at least they have the potential to be.

It’s impossible to know for sure what Snap’s woes mean for other players in the advertising space. Mr. Spiegel’s email to employees only highlighted macroeconomic and industry-wide factors that should, in theory, also influence them. “Like many other companies, we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, fundamental policy changes, the impact of the war in the region,” he wrote. Ukraine, etc.” None of those elements are Snap-specific.

In a note Monday night, Evercore ISI analyst Mark Mahaney said that the macroeconomic factors Snap cited should be relevant for all companies with advertising backgrounds, though he said Snap’s significant exposure in Europe (estimated at 15% of its advertising revenue) and brand advertising (estimated at 40% to 45% of its revenue) will be particularly negative for Meta, due to Facebook’s significant exposure in Europe and to Twitter, considering that the majority of its advertising revenue comes from brand advertising.

Unlike direct response advertising, which aims to attract an immediate click or conversion, brand advertising aims to drive brand awareness more passively and is therefore often more cyclical. He also noted that Google’s ad revenue structure is similar to Facebook’s, favoring direct response ads rather than brands.

No other social media platform appeared at the same investor conference, although Bill Ready, the head of Google’s commerce business, will deliver a keynote Wednesday morning. Google never gives revenue forecasts. But if other online advertising companies start to issue similar cautions, things could still get worse.

Write letter for Dan Gallagher at dan.gallagher@wsj.com and Laura Forman at laura.forman@wsj.com

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https://www.wsj.com/articles/oh-snap-there-goes-socials-online-ad-biz-11653386581?mod=rss_markets_main Snap Plunges, And There Goes Social Media’s Online Ad Biz

Edmund DeMarche

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