Snapchat suffered a huge 43 percent drop in its stock price on Tuesday after the company’s CEO warned of a continually deteriorating online digital advertising environment.
Social media giant that Snap CEO Evan Spiegel warned on Monday that due to multiple factors including digital ad spend cutback caused by inflation, supply chain challenges, and the ongoing war in Ukraine, the online advertising environment has continued to deteriorate.Spiegel warned that the online ad space has worsened again since his company reported its quarterly results in April when it posted already disappointing figures.
Snap lost 43.1 percent of its market cap on Tuesday. Other companies were also affected, with Pinterest seeing a drop of 23.6 percent, Facebook dropping 7.6 percent, Google losing five percent, and Twitter losing 5.6 percent. JMP Securities analysts wrote in a note following Snap’s disclosure: “Macro headwinds likely extend to all of digital advertising.” They added that brand budgets “are more at risk of being reduced as companies tighten ad budgets,” but that direct response ads that encourage users to take immediate action are “more connected to consumer spend, particularly eCommerce.”
Analysts from Stifel wrote that direct response campaigns “are likely starting to get hit a bit more from inflationary pressures,” and noted that Snap “is slightly more DR than brand currently.” Analysts at Atlantic Equities see broader market concern as justified following Spiegel’s statements. “Coming just a month after issuing guidance this would seem to highlight the current rapid pace of change in underlying economic conditions, with this likely to have negative implications for online advertising peers and also the wider internet sector,” the Atlantic Equities analysts wrote. “Snap’s warning is clearly a negative for all of the ad-supported peers.
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