Oh Snap! Share price plunge reflects an advertising slowdown
Shares in the owner of social media platform Snapchat – Snap (SNAP:NYSE) – slumped by over 30% after the group revealed it will miss quarterly estimates. The group blamed a macroeconomic environment that had ‘deteriorated further and faster than anticipated’.
While a degree of the weakness in Snap’s reported numbers may be attributable to the platform losing appeal, it reinforces the idea that given the rapidly deteriorating economic environment advertising budgets are likely to slow.
The resurgence in inflation is putting household finances under pressure and will reduce people’s ability to spend on discretionary goods. This was reflected in a wider sell-off in the social media and internet advertising space.
Snap is particularly vulnerable to a slowing economy given that in its 20 quarters as a publicly-listed firm, it is yet to make a profit at the operating level and can point to just one quarterly net profit.
Since the second quarter of 2017, Snap may have generated $10 billion in revenues, but it has turned that into an aggregate net loss of $5 billion.
The tentative indications of an advertising slowdown were apparent in Google-owner Alphabet’s (GOOG:NASDAQ) recently reported first quarter sales figure of $68 billion.
Google’s revenue growth slowed from 34% in the first quarter of 2021 to 23% in the most recent quarter.
The main factor behind the weakness was YouTube advertising sales.