Shares in Snapchat’s parent company have fallen 25% after it confirmed investors’ fears of a slowdown in ad revenue for social media companies.
Snap painted a bleak picture of the effects of a weakened economy on social media in Thursday’s quarterly results and declined to make a revenue forecast in “incredibly difficult” conditions, hitting its share price after of the trading hours and triggering a chain reaction among the listed. rivals
Snap, which generates more than two-thirds of its revenue in North America, said some advertisers continued to face supply chain disruptions and labor shortages, and many others were struggling with rising costs amid record inflation, which has led to cuts in advertising spending.
Snap’s revenue for the second quarter ended June 30 was $1.11bn (£930m), missing analysts’ expectations of $1.14bn, pushing its shares down a quarter to $12.33. The figure grew by 13% compared to the quarter of the previous year. Snap said revenue for the current third quarter was flat compared with a year earlier.
Daily active users on Snapchat rose 18% year-over-year to 347 million, beating consensus estimates of 344 million users.
Mike Proulx, director of research 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 especially volatile in the face of a period of economic headwinds where marketers are sure to pull. recoup their ad spend.”
The California-based company said it would significantly slow hiring, invest in its advertising business and find new revenue streams 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 a month and offers features such as the ability to send messages to friends from your desktop.
Facebook owner Meta, Google owner Alphabet and other companies that sell ads online lost about $80 billion in combined stock value Thursday after Snap’s results. The company is typically one of the first social media companies to report second-quarter earnings and is considered a benchmark for similar stocks.
Investors are expecting the slowest rate of growth in social media ad revenue this year, as rising inflation and other economic problems cause brands to cut their marketing budgets.
Twitter, embroiled in a legal dispute with suitor Elon Musk, reports results later Friday.
Tech stocks have been hit this year as rising inflation around the world has combined with interest rate hikes by central banks to lure investors. Advertising has not been the only factor in its decline. Technology stocks, whose price may be based on expectations of strong future earnings over many decades, may be relatively less attractive than the immediate fixed returns offered by investments such as bonds, which become more attractive in a rate environment of higher loan.
So far this year, Meta shares are down 46%, with Alphabet down 21%, Apple down 15% and Netflix down 62%.
“We are not satisfied with the results we are delivering regardless of the current headwinds,” Snap said.
Snap said recent privacy changes on iPhones, macroeconomic challenges and increasing competition for a slower-growing pool of advertising dollars contributed to “substantially slowing” revenue growth.
Snap has invested heavily in augmented reality technology and ads, which overlay digital images onto real-world photos and videos.
Snap CEO Evan Spiegel and chief technology officer Bobby Murphy have agreed to serve in their roles until at least January 1, 2027, for a salary of $1 and no stock-based compensation, it said. say the company Both have significant stakes in the company.