Snap says demand for ads slowed in wake of market forces

Snapchat’s advertising business ran into troubles on multiple fronts, and second-quarter revenue grew only 13%, to $1.1 billion. As Snap Inc. CEO Evan Spiegel said in a note to shareholders, “our financial results for Q2 do not reflect our ambition." The company’s shares, which were already down significantly so far this year, plunged 26% to $12.03 in after-hours trading. Snap, the camera app company that has pioneered digital video and augmented reality, has been having difficulty sustaining growth in its ads business, because of several trends that have hampered mobile marketing. In particular, last year, Apple changed its iPhone software so that apps like Snapchat could no longer track customers without their opted-in consent. The app-tracking transparency rules have done a number on apps such as Snapchat, which rely on accurate insights into how customers interact with ads to report back to brands. Without easy access to those insights, marketers are trying new platforms and tactics. In its quarterly investor newsletter, Snap identified Apple’s platform changes as just one of the reasons for its slowed growth. Snap also noted that the general economic environment is not conducive to advertising, as there has been inflation and other challenges. “Demand growth on our advertising platform has slowed significantly,” Snap’s investor letter said. “The combination of macroeconomic headwinds, platform policy changes, and increased competition have limited the growth of campaign budgets. In some cases, advertisers have lowered their bids per action to reflect their current willingness to pay.” “We are not satisfied with the results we are delivering, regardless of the current headwinds,” the shareholder letter said. In a call with Wall Street analysts on Thursday, Jeremi Gorman, Snap’s chief business officer, said that “we know that our advertising partners are facing significant uncertainty.” Snap executives on the call discussed how marketers are dialing back on digital marketing budgets, especially on automated ad platforms like Snapchat, where it’s easy to turn campaigns on and off as economic conditions change. Marketers are paying close attention to Snap’s quarterly results since it was the first major social media app to report its finances this quarter. Twitter reports its second-quarter results on Friday, while Google, Meta and Amazon report next week. In May, Snap’s Spiegel warned investors that the company was not on target to meet the revenue forecast that it set in the first quarter, when it expected second-quarter revenue to grow up to 25%, and Snap and other social media stocks plummeted. Growing amid competition Snap’s platform is still growing, however, with daily active users increasing 18% year over year to 347 million people. Snap has been developing hardware such as its Pixy camera drone, which it released in April. Snapchat also has been leading the way in augmented reality, and working with luxury brands such as Vogue and Tiffany & Co. Augmented reality is becoming a centerpiece in the online shopping world, as it gives brands ways to depict 3D versions of their products in digital settings. Snapchat, however, faces increased competition for the time and attention of younger users with the emergence of Chinese-owned TikTok, which has also won over many video creators with its addictive algorithm and active fanbase. Snap’s sophisticated augmented reality could be one of the reasons it is having trouble adjusting in the current economic climate, according to Jasmine Enberg, principal analyst at Insider Intelligence. "Snapchat has many brand advertisers, and it is brand advertising, particularly on experimental ad formats like augmented reality, that tends to go first whenever marketing budgets are cut," Enberg wrote in a note on Thursday. "Snap is also still reeling from the impact of Apple’s privacy changes." Snapchat said it would work to improve its direct-response advertising products, which are ad campaigns that can more clearly be traced to sales and consumer activity, as opposed to brand campaigns that are more about awareness. All platforms are trying to integrate direct-response campaigns more tightly into their apps, which is one of the ways to guard against relying on Apple for data. If brands invest fully in a platform, they could theoretically drive outcomes right on an app and have access to rich data about that marketing. “We continue to see significant room to drive growth via our direct-response advertising platform because digital advertising provides a measurable return on spend,” Snap said in its letter.

Snap says demand for ads slowed in wake of market forces

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