The well being of internet advertising has been debated since Snapchat’s “revenue warning”

Snapchat-specific temporary turbulence? Or a difficult landing in sight for the entire sector in 2022? The “profit warning” published by the social network this week cast doubt on the health of the digital advertising market, which is, by the way, the butter of the platform. After a record 2021, advertisers are now facing a very uncertain economic environment, and are therefore reconsidering their advertising investments.

Snapchat CEO Evan Spiegel openly acknowledged this in a letter to employees. “Like many companies, we are facing rising inflation and interest rates, a lack of supply chain and labor market disruptions, regulatory changes, the war in Ukraine and more,” he said. The result, while Snapchat bet on a growth rate of 20% to 25% in the second quarter, traffic and Ebitda are likely to be below this range.

The announcement had the effect of an earthquake. After that, Snap shares fell 40%, the biggest one-day drop since the 2017 IPO. The group lost a third of its value. After that, several large technology stocks that are heavily dependent on advertising also fell. Starting with Meta (formerly Facebook), Google, but also advertising giants like WPP. According to Bloomberg’s calculations, the sector lost 135 billion in market capitalization.

Snapchat, a “small” network

At this stage, however, analysts are divided over what this means for the rest of the market in 2022. For some, social networks are also affected by more microeconomic phenomena. “The reality is that it is a part [de la décélération] is unique to Snapchat, ”said Justin Patterson of KeyBanc Capital Markets. “Google, Facebook, The Trade Desk and Roku should hold up better, while smaller social networks like Pinterest or Twitter could face more pressure.”

However, with just over 4 billion in traffic in 2021, Snap is also a “small” network in the Galaxy Platform. It took the group ten years before making its first quarterly profit in its history in early 2022. Since then, the social network has remained fragile: it has just ended the first quarter of 2022 with a net loss of about $ 360 million. Even if it now has 332 million users a day (+ 18%), Snap is facing competition from TikTok, another popular social network for young people, which has more than a billion fans.

In addition, Snapchat was also affected by Apple’s new rules on targeting advertising on iPhones. For the past year, apps have had to ask their users whether or not they want their data to be shared with third parties. However, in the case of rejection, the effectiveness of advertising decreases and the revenue with it. According to Lotame, an industry expert, the deficit for Facebook, YouTube, Twitter and Snapchat could reach $ 16 billion this year.

Uber Optimism

On the other hand, for other analysts, Snap’s “profit warning” illustrates the difficulties of digital advertising as a whole. “After years of Uber-optimism, we are really concerned about the long-term prospects for growth,” said Michael Nathanson, a well-accepted analyst at MoffettNathanson.

Because before Snapchat, the results of Meta (formerly Facebook) and Google, two digital advertising giants, were already alarming. In the first quarter, Mark Zuckerberg’s group recorded a meager 6.6% revenue growth – the weakest since the 2012 IPO. At Google, advertising revenue grew “only” by 22% during that period – compared to 32% at the same time. a year ago.

In 2021, the explosion of e-commerce in many parts of the world that were still limited really caused an increase in advertising costs. In addition, the savings that advertisers make through telecommuting (rent, energy, etc.) can be easily re-injected into advertising. Between inflation and the war in Ukraine, the context is very different today and burdens advertisers.

Admittedly, advertising spending continues to advance in Asia (+ 23% in the first quarter according to Emplifa), the Middle East (+ 30%) and Africa (+ 162%). The situation, on the other hand, is more contrasting in Europe (+ 10%) and the United States (+ 34%). Across the Atlantic, the digital advertising market will grow by only 12.5% ​​per year by 2025, according to MoffettNathanson. Far from the originally planned 18.5%.

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