Saturday , December 4 2021

Snap warning feeds concerns over social media ad splurge


A warning from Snap Inc is rattling technology investors who have got used to turbocharged growth in ad spending on social media.
Executives from the maker of Snapchat said that supply-chain bottlenecks are prompting companies to hold back on online ad spend for the upcoming holiday season, meaning sales will rise by only around 30% in the fourth quarter compared to analyst estimates of nearly 50%.
The comments took the market by surprise and set the company’s stock on course for its biggest ever decline.
The announcement adds to growing concerns over whether the wall of money that’s been shifted from traditional marketing to social media in recent years is being well spent.
Social media will account for 39% of ad budgets next year, even though they will only represent 21% of daily media consumption, according to a study from industry researcher WARC. The discrepancy adds up to a gap of $94 billion, it said.
It’s been getting harder to judge whether social media ad spend is really working because Apple Inc and Alphabet Inc’s Google are making it more difficult for advertisers to track consumers online.
That also poses a risk to the revenues of Facebook Inc and Twitter Inc. Shares in both companies dropped after the Snap announcement, reflecting concerns that some marketing budgets will simply be
redirected from social media.
Europe’s biggest ad agency networks WPP Plc and Publicis Groupe SA traded flat to slightly higher last week.
There’s little sign that the broader transfer of advertising dollars to platforms like Instagram and TikTok will end soon, or that the global crisis in supply chains is leading brands to rethink their ad strategies.
Clients in consumer goods, retail, automotive and electronics “continue to spend, continue to shift spend to digital and there have been no instances of any pullbacks,” said Martin Sorrell, chairman of S4 Capital Plc. “The comments around supply chain issues simply don’t reflect what we are seeing. In fact, we are experiencing the opposite.”

Snapchat’s record
rout leads $142b
social-media selloff

Snap Inc posted its biggest one-day drop on record after the Snapchat parent company warned that Apple Inc’s data collection rules and global supply-chain
bottlenecks are weighing on
advertising spending.
The stock tumbled 27%, wiping out about $32 billion of a market value that now sits around $89 billion. The cautious outlook cast a shadow over ad-dependent peers, including Google-owner Alphabet Inc, Facebook Inc, Twitter Inc and Pinterest Inc, which fell between 3% and 5% each.
All together, Snap’s warning erased about $142 billion of market value from the company and peers on October 22. Investors are bracing for Snap’s challenges to be felt industry-wide, with Alphabet, Facebook and Twitter due to report quarterly results next week.
The S&P 500 Index snapped a seven-day streak of gains. Federal Reserve Chair Jerome Powell’s comments around rising inflation risk added to investor concern regarding Snap’s impact on technology shares.
Speaking on a post-earnings call with analysts, Chief Executive Officer Evan Spiegel said data collection rules introduced by Apple have made it difficult for advertisers to measure and manage their ad campaigns. Snap expects adjusted earnings before interest, tax, depreciation and amortisation of $135 million to $175 million in the last three months of 2021, much lower than the $299.3 million forecast from Wall Street.
Earlier this year, Apple started requiring all apps on its iOS 15 platform to get iPhone users’ permission to be tracked for advertising purposes. Analysts are warning that the impact could be long lasting, while supply-chain snags at Snap’s advertising partners are most likely to be transitory.
Morgan Stanley’s Brian Nowak said he sees the impact from Apple’s privacy changes hurting Facebook’s revenue by low-to-mid single-digit percentages. He expects Twitter to be weighed down more in the next two years as the changes hurt the micro-blogging company’s “multi-year bull case.”
Though Snap could face the worst impact among peers from Apple’s changes, JPMorgan analyst Doug Anmuth said Facebook’s profile looks similar. For Google, supply bottlenecks are more of a concern, he said.
Snap said its advertising partners across a variety of industries are facing supply-chain disruptions and labor shortages. This is occurring at a time when these partners would normally be operating at peak capacity, generating the strongest and most valuable quarter for ad revenue. But marketers can’t advertise for products they can’t sell.

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