Dire Snap Forecast Dampens Social Media, Digital Ad Sectors

Snap’s investor warning of slow growth ahead has sent shivers through the social media sector, the digital advertising industry, and Wall Street. Though the general messaging that supply chain issues coupled with the war in Ukraine is bad for business is not exactly news, Snap CEO Evan Spiegel’s message that “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month” hit a nerve. Snap lost 43 percent of its market cap on Tuesday, with the social media sector showing signs of drag and analysts forecasting trouble ahead for ad-supported media.

The general feeling seemed to be the current macroeconomic trends could extend well beyond Snap. Social media companies already roiled from privacy policy changes and a cutback in digital ad spending saw value continuing a downward trend.

“Shares in Facebook parent Meta Platforms Inc. and Google parent Alphabet Inc. closed down 7.6 percent and 5 percent, respectively, on Tuesday,” reports The Wall Street Journal, adding that ad agency holding companies Omnicom fell 8.4 percent with Interpublic Group down 5 percent. Meanwhile, Trade Desk, an online-ad middleman, plunged 18.5 percent. Pinterest took a  23.6 dive, while Twitter sank 5.6 percent this week.

While many agreed with Morgan Stanley analyst Brian Nowak’s observation, as paraphrased in WSJ, that he expects “all online ad platforms to feel some impact of a significant consumer pullback.” Another analyst said “Snap, like other big digital-ad players, was due for some deceleration after a period of superfast growth that may have been unsustainable,” WSJ writes.

GroupM global president of business intelligence Brian Wieser, who monitors economic trends at the ad-buying company, came down somewhere in the middle, with WSJ characterizing his position as considering it “still unclear how economic uncertainty is shaking out in the ad market. Companies in certain sectors may slash ad spending in this environment, while those in other categories will actually raise spending.”

Apparel firm VF Corporation, which includes brands The North Face and Timberland in its portfolio, is among those that actually expect to increase “the proportion of sales it allocates to ad spending,” WSJ writes.

“Macro headwinds likely extend to all of digital advertising,” reports, adding that “brand budgets, and especially digital ones, ‘are more at risk of being reduced as companies tighten ad budgets,’ while direct response ads, or those that encourage viewers to take immediate action, are “more connected to consumer spend, particularly e-commerce.”

“Macro headwinds likely extend to all of digital advertising,” wrote JMP Securities analysts, as reported by CNBC. The analysts suggested that brand budgets “are more at risk of being reduced as companies tighten ad budgets,” while direct response ads “more connected to consumer spend, particularly e-commerce.”

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