Investors knew that the world wasn’t clicking for online advertisers right now. In a snap on Monday night, they grasped how dire the situation might be.
Nearly every major player in the sector reported a notable slowdown in advertising revenue growth during the recent first-quarter earnings season. All but one actually missed Wall Street’s targets for that category as well. Then, in a surprise announcement,
the parent company of Snapchat, said in a filing Monday afternoon that revenue and adjusted pretax earnings for the second quarter will come in below the range the company projected barely a month ago.
Snap’s online-ad business is a fraction of the size of Google’s, Facebook’s or even
. Still, it was an ominous note to sound barely halfway through the second quarter from a company that had never issued a revenue warning before. During a presentation at an investment conference that precipitated the filing, Snap Chief Executive Officer
said “the macroeconomic environment has definitely deteriorated further and faster than we expected.” He also noted that the company would be taking steps like “changing some of the pacing of our hiring.” 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 additional cost savings.”
Snap’s shares fell 30% after hours on Monday following the disclosures. Facebook parent
sank 7% after hours on the news, while shares of
fell nearly 12%. Shares of Google parent
took smaller hits. Amazon, which only recently began disclosing the size of an online-ad business that now generates nearly $33 billion in annual revenue, saw its shares slip by 2% following Snap’s warning.
Just how bad is it out there? One of Mr. Spiegel’s only reassuring revelations was that revenue still is growing year-over-year. Given that second-quarter guidance was for 20% to 25% growth, that leaves a lot of downside. Since it became a public company, Snap’s slowest quarter of growth on record was 17%, seen at the onset of the Covid-19 pandemic in 2020. The lack of any new specific guidance indicates things might now be materially worse than that—or at least that they have the potential to be.
It is impossible to know for sure what Snap’s woes mean for other players in the ad sector. Mr. Spiegel’s email to employees highlighted only macroeconomic and sector-wide factors that should, in theory, impact them too. “Like many companies,” he wrote, “we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, platform policy changes, the impact of the war in Ukraine, and more.” None of those factors are Snap-specific.
In a note Monday evening, Evercore ISI analyst
said that the macroeconomic factors Snap cited should be relevant for all companies with an ad platform, though he said Snap’s significant exposure to Europe (an estimated 15% of its ad revenue) and brand advertisements (an estimated 40% to 45% of its revenue) would be particularly negative for Meta, given Facebook’s significant European exposure, and for Twitter, considering that the majority of its ad revenue comes from brand ads. Unlike direct-response ads, meant to elicit an immediate click or conversion, brand advertisements are meant to drive more passive brand awareness and are therefore often more cyclical in nature. He also noted that Google’s ad-revenue composition skews similar to Facebook’s, favoring direct-response ads over brand.
None of the other social-media platforms appear to be presenting at the same investor conference, though Bill Ready, who leads Google’s commerce business, will be giving a keynote on Wednesday morning. Google never gives revenue forecasts, anyway. But if other online-ad companies start sounding similar notes of caution, things could still get uglier.
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Oh, Snap, There Goes Social’s Online-Ad Biz Source link Oh, Snap, There Goes Social’s Online-Ad Biz