Valuation Falls in a Snap, Ad Spending Impacted

Evidently, big tech can get in the way of big tech. Over the years, it became most lucrative for certain social media firms to focus on advertising, or to sell ad space on their platforms.

While Snap Inc. (SNAP) may promote itself as a camera and photo sharing company, its users’ behavioral data is the real product. These signals are gathered and then sold to ad managers, who use them to accurately target specific demographics. Recently, however, this has changed. Snap Inc. (SNAP) printed less than stellar Q3 earnings last Thursday evening, and one of the culprits seems to be another large tech company.  

Detailing the cautionary tale is Brian White of Monness, who wrote that Apple’s (AAPL) App Tracking Transparency (ATT), which was introduced with iOS 14.5, is “negatively impacting signals used by advertisers to measure the effectiveness of ad campaigns, while supply chain disruptions and labor shortages have begun weighing on advertisers.” After its earnings call, SNAP shares closed down -26.59% on Friday.  

White rated the stock a neutral Hold, and did not provide a price target.  

The five-star analyst elaborated that Snap has more potential to be impacted due to its smaller size and tech stack, relative to competitors. Although much larger, Facebook (FB) and Alphabet (GOOGL) are not impermeable either to the macro environment shifts and decline in ad spending.  

While Apple’s privacy changes are made to blame, retailers are feeling pain from their own issues, and thus have pulled back on ad campaigns.  

On the positive side, Snap successfully beat Wall Street consensus estimates on its daily active user metric, increasing it 20% quarter-over-quarter. Over the last few years, the company has been improving on its execution, monetizing new initiatives, and upgrading its vertically integrated ad business.  

Look toward Q4, the trouble is not yet over. Apple plans increased privacy options on its operating systems, which are expected to strip SNAP of even more of its valuable data signals.  

Investors can gain valuable insights into the company using TipRanks website traffic tool, which shows that visits to Snapchat.com rose 15.39% quarter-over-quarter, and the stock’s valuation rose 8.41% over that same period. Meanwhile, year-to-date visits compared to 2020’s year-to-date visits are down 3.59%.  

Snapchat.com website traffic

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Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article. 

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