Snap Inc. (NYSE: SNAP), the parent company of Snapchat, sank by as much as 30% at one point in after-market trading yesterday following a failure to meet Q3 revenue expectations. The company only narrowly missed these estimates, posting revenue of $1.07 billion against an anticipated $1.1 billion. Snap actually bettered estimates for adjusted earnings per share (EPS) by posting $0.17 against a forecasted $0.08.
However, the company tempered Q4 expectations by predicting a severe revenue slowdown. Analyst estimates were penned at $1.36 billion for Q4, but Snap only predicts revenue in the range of $1.16 billion to $1.2 billion. This prediction set off a cascade of events that resulted in Snap losing over a quarter of its value, Facebook and Twitter dropping over 5% respectively, and Pinterest and Alphabet falling roughly 3%.
So why did this happen?
Why is Snap stock down?
In April of this year, Apple introduced wholesale changes to how it handles privacy on its devices. Apps are now required to ask users if they wish to be tracked or not. Of course, a vast majority of users say no. Mobile analytics company Flurry examined customer data across the world and found only a 21% opt-in rate for Apple users across all apps.
These changes have caused severe difficulties for companies, like Snap, who rely heavily on advertising revenue. In a prepared statement ahead of the earnings report, CEO and co-founder Evan Spiegel said:
“Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July. While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS.”
This wholesale change in how businesses advertise is going to take time to get used to. Despite Apple rolling out a proprietary solution to aid app-based advertisers in measuring their desired metrics, the results have been sub-par. This development should act as a warning to potential investors in any tech stock that leans on advertising to generate large proportions of its revenue.
So what happens now?
Despite the extreme price drop seen yesterday following its earnings report, Snap has rebounded back and recovered almost all of its losses. Looking past yesterday’s report, Snap has also done an excellent job of expanding its product offerings. Once just a social media platform, the company now boasts augmented reality capacities through its “Spectacles” range, and has widened its content through “Spotlight” in an attempt to rival TikTok.
Snap as a potential investment still maintains many strong properties. However, due diligence needs to be taken to determine just how much the change in global advertising is going to continue to affect the company. Alongside this, global supply-chain issues may also indirectly hurt Snap’s bottom line, as advertising spend will likely drop if companies have no means to manufacture or deliver their products.
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Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.