Snapchat owner’s shares drop 25% amid slowing ad revenue

Shares of Snapchat’s parent company fell 25% after confirming investor fears of slowing ad revenue from social media companies.

Snap painted a grim picture of the effects of a weaker economy on social media in Thursday’s quarterly results and declined to make a revenue forecast under “incredibly difficult” conditions, its share price after the hours of trading and setting off a chain reaction among listed rivals.

Snap, which generates more than two-thirds of its revenue in North America, said some advertisers continue to face supply chain disruptions and labor shortages, and many others faced rising costs amid record inflation, which led to spending cuts. The advertisement.

Snap’s revenue for the second quarter ending June 30 was $1.11bn (£930m), missing analysts’ expectations of $1.14bn, sending it plummeting its shares of a quarter to 12.33 dollars. The figure increased by 13% compared to the quarter of the previous year. Snap said revenue for the current third quarter was flat from a year earlier.

Daily active users on Snapchat grew 18% year-on-year to 347 million, beating consensus estimates of 344 million users.

Mike Proulx, research director at analytics firm Forrester, said: “While the platform’s user base remains strong, Snap’s ad-centric model is no longer a safe bet and is particularly volatile as we approach a period of economic headwinds where marketers are sure to recoup their advertising spend.”

The California-based company said it would significantly slow down hiring, invest in its advertising business and find new revenue streams in order to grow at a faster pace. Advertising is Snap’s main source of revenue. It recently launched a premium service called Snapchat Plus, which costs $3.99/£3.99 per month and offers features like the ability to message friends from your desktop.

Facebook owner Meta, Google owner Alphabet and other companies that sell online ads lost about $80 billion in combined market value on Thursday after Snap’s results. The company is normally one of the first social media companies to report two-quarter earnings and is seen as an indicator for similar stocks.

Investors expect the slowest pace of growth ever for social media ad revenue this year, as rising inflation and other economic issues cause brands to cut marketing budgets.

Twitter, mired in a legal dispute with potential suitor Elon Musk, reports the results later Friday.

Tech stocks have been hit this year as rising inflation around the world combined with central bank interest rate hikes to rattle investors. Advertising was not the only factor in their decline. Tech stocks, the price of which may be based on strong expectations of future earnings over several decades, may be relatively less attractive than the immediate fixed returns offered by investments such as bonds, which become more attractive in a high interest rate environment. higher loans.

So far this year, shares of Meta have fallen 46%, with Alphabet down 21%, Apple down 15% and Netflix down 62%.

“We’re not happy with the results we’re getting, regardless of the current headwinds,” Snap said.

Recent privacy changes on iPhones, macroeconomic challenges and growing competition for a slower-growing pool of advertising dollars have all contributed to “significantly slow” revenue growth, Snap said.

Snap has invested heavily in augmented reality technology and ads, which superimpose digital images over real-world photos and videos.

Snap chief executive Evan Spiegel and chief technology officer Bobby Murphy have agreed to serve until at least January 1, 2027, for a salary of $1 and no stock compensation, the company said. . Both hold significant stakes in the company.

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