This year has been quite rough for social media companies because of their digital ad spending reduction. This is mainly due to the continuous economic inflation, war in Ukraine, and supply chain challenges. For the second quarter of the year, forecasts asked for limited growth, and the value of stock prices continued to constantly decrease. Since Snapchat submitted the quarterly reports in April, Evan Spiegel, Snapchat’s CEO, also alerted industry leaders about the condition of the environment late Monday – it was getting worse! It was when the guidance was already disappointing.
Spiegel sent a warning across the digital ad industry. According to him, the macro-environment continued to decline faster than anticipated in the last month when the quarterly report was issued. He sent the warning to the digital ad industry, which alerted investors to make the painful decision of possibly running away from the danger.
How Does the Digital Media Industry Look Like Now?
The growth of Snapchat has previously been around 20% to 25%. Now, Snapchat’s worth has been affected by the decline of around 43.1% of its market share on Monday. Likewise, the worth of Pinterest, Google, Facebook, and Twitter also dropped 23.6%, 5%, 7.6%, and 5.6%, respectively. There are a lot of macro factors are causing hindrance to the growth of the overall digital industry. The budgets of most brands and companies, especially digital ones, are likely to be reduced.
On the other hand, direct response ads which encourage viewers to immediately take action are connected to consumer spending. According to analysts at Stifel, direct response ad campaigns are more likely going to be affected by inflation. An important note here is that Snapchat is currently also more of a direct response campaign than the brand or the company itself.
Considering the size of Snapchat, the significant impact of their commentary would seem surprising. In a quarter, Snap could only generate a small fraction of the money that both Google and Facebook earn. In the last month, Facebook even warned its investors that their revenue will be declining in the second quarter of 2022. It was quite a straightforward acknowledgment that came from a company that has never experienced anything less than double-digits when it comes to growth.
Is There a Future for Ads?
Following Spiegel’s letter, analysts at Atlantic Equities wrote about this justified concern in the broader market. According to them, a storm is heading straight towards the ad businesses. After the increase in revenues during a pandemic, a slowdown was expected but would not be allowed to happen.
The sudden changes in the industry and unstable economic conditions are going to affect online advertising peers. According to analysts, Snapchat’s warning is a direct message to businesses who support ads. Alas, the warning isn’t specific to Snapchat alone – it reverberates toward the whole digital ad industry!
The overall effect of this dispute was so clear that all ad-tech platforms suffered including apps, publishers, and ad-supported sites. For instance, Pubmatic’s dropped by 15.9%, The Trade Desk by 18.5%, and Digital Turbine by 13.2%. Each of them has lost almost 45% of its market value this year. So, Snapchat is not the only platform that is struggling to meet its expectations for digital ad spending.
The Bottom Line
In short, Snapchat has given a direct warning to the entire social media industry which relies on revenues it generates from ads. It has caused to leave Snapchat, publishers, apps, and multiple sites in a vulnerable spot amid the unstable economic conditions and wide changes in the industry.
