Snap Inc’s profit warning sees tech stocks tumble $233b as the war for ad dollars rages on
Snap Inc. faced a rough day at the office, as a profit warning issued on Tuesday sent the company’s share price crashing almost 40%. The Snap fall incited a seismic total decline of $US165 billion (A$233b) in share prices across social media stocks, with Facebook parent company Meta suffering a $53 billion plunge in market value after Snap’s announcement.
Snap, which has become dependent on digital ads, saw 43% of its market value wiped out after the release of its profit warning.
Snap’s Q1 2022 financial highlights showed revenue increased 38% to US$1,063 million (A$ 1.44 million), compared to the prior year. At the time of its Q1 results release, market capitalisation of Snap was at US$47.786 billion (A$64.942 billion), and the share price sat at $29.42 USD. Today, that share price has plunged to $12.79 USD.
Snap Inc. chief executive officer Evan Spiegel hinted earlier at a troubling macro environment following the release of the company’s Q1 results, saying at the time: “Our first quarter results reflect the underlying momentum in our business through a challenging operating environment.”
Snap simultaneously announced a hiring slowdown would take place, adding to the concern that led to the sharp share price decline. Snap pledged to hire 500 new roles before the end of the year, on top of 900 jobs already offered this year. This compares to about 1,800 new staff added over 2021.
Following the profit release warning, Snap commented that “the macroeconomic environment has deteriorated further and faster than anticipated” in 2022.
The news has instigated tumbling share prices across most social media stocks, including Meta Platforms Inc., Google-owner Alphabet Inc., Twitter Inc. and Pinterest Inc, with the group losing a combined total of $US165.6 billion ($233 billion).
Meta stocks plunged by 10%, marking yet another blow for the company after the February announcement that user additions stalled, which saw the biggest one-day wipeout in market value for any US company ever take place.
Notably, these declining valuations have also triggered widespread selling across the advertising and ad-tech space. Among notable decliners, Trade Desk Inc. sank 19%, Magnite Inc. lost 13%, LiveRamp Holdings Inc. slid 8%, Roku Inc. dropped 14%, and Vizio Holding Corp. was down almost 10%. In addition, Omnicom Group Inc. fell 8.4% and Interpublic Group of Cos lost 4.9%.
Speigel cited inflation as a cause of lowering revenue, hinting at stiff competition between digital platforms for ad dollars at a challenging time, when consumer spending has troughed as a consequence of inflation.
User growth is another a big focus for social media firms as they vie to attract new customers to target ads in an already saturated market. In February, Facebook-parent Meta posted the biggest one-day wipeout in market value for any US company ever after saying that user additions stalled.
A bevy of new opportunities for creators to grow their audiences have been introduced by Snap. Creators hosting shows for their audiences on Snap have monetisation enabled with Snap Ads and Commercials, with a revenue share component meaning Snap is generating considerable revenue from their creator tools.
Snap’s January introduction of an augmented reality shopping lens, which allows users to virtually browse, try on and shop for products using Snap’s camera, was created to help the company boost ad revenues while appealing to brands and creators alike.
The function benefitted Snap with analytics provided in real time, as the AR Shopping Lenses are linked directly to the company’s product catalog. The provided analytics allow brands and marketers to gain more immediate insights that can help them determine which types of products are resonating best with Snapchat’s younger, Gen Z and millennial audience.
Global cosmetics brand MAC saw 1.3 million try-ons with the AR Lenses at a cost of 0.31 cents per product trial and a reported 17x increase in purchases among women.
The AR improvements were introduced to help give Snap a way to better compete with ad-revenue generating shopping experiences designed by larger social media companies, which aren’t as heavily focused on AR-enabled shopping in favor of other experiences, like live video shopping, influencer marketing powered by brand deals, and in-app shopping experiences which allow users to transact from within the social app they’re using, like Shop on Instagram.
The war for advertising dollars continues to rage between the Big Tech giants amidst vast market crashes, macroeconomic challenges and rising inflation.
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