Social media has already transformed the world, but its transformative influence is likely just getting started.
Emerging technologies, including augmented reality (AR) and the metaverse, stand to change how people communicate and see the world.
These trends are likely to produce big wins for leading businesses.
Snap Inc. on Thursday said its promotion business bounced back from the outcomes of Apple Inc’s privacy changes faster than it predicted, and shares of the company soared 50% as it provided a first-quarter outlook that surpassed analyst estimates.
The outcomes were good news for a tech sector struck since yesterday on negative outlooks and concern that Apple’s privacy updates, which were introduced last year and let users prevent apps from tracking their online activity for advertising purposes, would hurt ad revenue.
Snap forecast first-quarter revenue between $1.03 billion to $1.08 billion, and daily active users to be between 328 million to 330 million. The guidance for both metrics surpassed analyst estimates, according to IBES data from Refinitiv.
Digital pinboard company Pinterest Inc also reported higher-than-expected revenue on Thursday, and its shares rose 20%.
The earnings reports from both Snap and Pinterest contrast with that of Facebook owner Meta Platforms Inc, whose shares fell 26% on Thursday in what could be the largest single-day wipeout in market value for a U.S. company, a day after it said the impact from Apple’s privacy modifications could be “in the order of $10 billion” this year.
Meta said the Apple updates damage advertisers’ capacity to target ads to potential customers and measure the effectiveness of ads.
A big portion of Snap’s advertisers started using new ad measurement tools by the end of the fourth quarter, and parts of Snap’s advertising business started to recover from the Apple changes “quicker than we anticipated,” said Snap Chief Financial Officer Derek Andersen, in prepared remarks released ahead of the earnings call with analysts.
However, he added that global supply chain disturbances and labor shortages hurt advertising demand from consumer packaged goods and restaurant brands.
Snap’s earnings for the fourth quarter ended Dec. 31 was $1.3 billion, an increase of 42% from the prior-year quarter. The figure beat analyst expectations of $1.2 billion, according to IBES data from Refinitiv.
Daily active users on Snapchat rose 20% year-over-year to 319 million, beating consensus estimates of 316.5 million.
Snap still has a long runway for development compared to larger tech rivals, and it has developed a strategy to attract new users across Latin America, Europe, and Asia.
Meta reported Wednesday that Facebook has 2.91 billion monthly users globally, which showed no growth compared with the previous quarter.
Snap also registered its first quarter of positive net income since its initial public offering, with earnings of $22.5 million in the fourth quarter, compared with a net loss of $113 million in the prior-year quarter.
What Caused Snap Stock’s Massive Decline?
It does not seem to be the reported numbers, as Snap reported solid top-line growth highlighted by 60% in North America.
The problem wasn’t necessarily the reported financials – instead, it was SNAP’s guidance for following quarter revenues of between $1,165 million and $1,205 million, representing only 33% growth at the high end.
Snap management attributed the steep deceleration to Apple’s new data privacy changes, which negatively impacted the perceived ROI on its advertisements. Snap is expected to require some time to work through the latest change to be a highly relevant social networking site today.
Risks with Snap
Snap’s ad business is witnessing some headwinds. Apple’s iOS changes limit the insights of advertisers into their customers’ purchasing behavior.
This could impact conversions and result in a lower ad spend short term. Declining ad spending is a threat that could impact Snap’s revenue growth. The supply chain crisis also poses a challenge because advertisers might scale back digital ad spending until the problem is resolved.
Businesses have certainty that the products they advertise will be available to customers. For these grounds, Snap may grow earnings at a slower pace in the future than expected.
Conclusion
Snap’s ad earnings may decline short term, but the long-term trend in digital advertising indicates growing ad spend, which is set to benefit large platforms like Snap with hundreds of millions of active users. Snap is rapidly expanding its user base and ARPU, which are the two most important metrics for social media companies.
After Snap went through a near-30% drop in pricing, I bought Snap for the recovery potential!