Lingering IDFA fallout
Last week, Snap CEO Evan Spiegel said his company would have even lower growth than it had predicted when it announced first-quarter earnings in late April. Initially, Snap expected its revenue to jump 20% to 25% in the second quarter. During the same period last year, revenue was $983 million. Now, “revenue is growing more slowly than we expected,” Spiegel said in a note to employees.
Snap blamed general macroeconomic conditions, and inflation is certainly a worry, along with the war in Ukraine, signs of broader global economic retreat, and other factors. But the Apple changes are one of the biggest, according to industry experts. Snap did not immediately respond to a request for comment.
All apps and ad tech platforms are handling Apple’s changes differently, as it affects them all differently, but they also seem to raise common challenges. Google, Meta, Snap, Pinterest, Twitter, TikTok and thousands of others have to develop new tools to target and measure ads without the same easy access to information coming from iPhones.
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So, for instance, it is harder for Snap to detect when a visitor to its app clicked an ad for, say, sneakers, and then purchased those shoes outside of Snap. In the past, Apple’s ID for advertisers would record that “conversion” event, but now Snap needs new technology to get the same level of insight into how a campaign is performing. Meta, Google, Twitter and others have the same problem, just to varying degrees. Meanwhile, Google is working on similar privacy protections that will limit developers and ad tech companies from peering into consumers on Chrome web browsers and Android devices.
Next week, Apple is set to make even more changes to iPhone software that could make tracking consumers more difficult by expanding Private Relay, a method of obscuring internet protocol addresses, which is a signal that could identify devices without using the identity for advertisers. IP addresses leave traces of devices that visit the internet.
“[Social media platforms] not having the visibility, the transparency and the clarity around some of the attribution is certainly one of the other things we're hearing from some of [our] marketers,” said Sunil Rao, senior VP of analytics at Merkle, a performance marketing agency.
General economic conditions are not favorable for Snap, either. Inflation, for instance, could hurt social media platforms with younger audiences more than aging platforms, Rao said.
Merkle recently compiled data on inflation for a tool to help brands adjust their strategies, and found that Gen Z audiences, in particular, are likely to feel the squeeze of inflation. They don’t have as much saved as older generations and may therefore be consciously cutting back their discretionary spending—such as on products they see advertised on Snap.
Several key announcements from the Federal Reserve concerning inflation, including the largest interest rate hike in over 20 years, were made between the time that Snap issued its initial second-quarter guidance on April 21 and lowered its guidance on May 24—an indication that these developments may have softened advertisers’ demand for the platform.
The macroeconomic conditions have forced marketers to prioritize return on investment over anything else, said Zeta’s Steinberg, which is a troubling trend for an app like Snap because Apple is making it harder to deliver that result.
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Snap has expressed for the past year that it is still very much figuring out how best to provide marketers with effective conversion tools in the aftermath of Apple’s IDFA restrictions. Since these methods aren’t yet tried-and-trusted, marketers have fled to safer attribution models.
Amazon, Google, Meta and other more quantifiable ad platforms could be the beneficiaries if advertisers flee to sites with richer data sources and more familiar mechanics.
Snapchat is not alone, though. Pinterest and Twitter have been cautious with guidance: in late April, Pinterest projected second-quarter revenue growth that was below expectations, and Twitter completely withdrew its earlier outlook. (Of course, Twitter is in the middle of a deal to sell the company to Elon Musk, and potentially go private, which means it would not need to disclose financial results.)
The social media companies are trying to temper expectations as they head into a difficult period, said Steinberg.
“As you recalibrate your business, if you can get to a place where expectations are low, and you can beat them, that puts you in a unique position,” he said.