Snap Feels the Pain of a Disrupted Digital Ad Market
Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.
An admittedly “challenging” first quarter highlighted social media giant Snap’s exposure to ongoing disruptions in digital advertising.
The Santa Monica-based company, which generates virtually all of its revenue from ads, reported first-quarter sales on Thursday that narrowly missed Wall Street’s expectations, despite adding more users than analysts predicted. Snap executives blamed its lagging ad business on a difficult “macroeconomic environment,” as well as the lingering fallout from Apple’s privacy policy changes on mobile devices.
“The first quarter of 2022 proved more challenging than we had expected,” CEO Evan Spiegel said on Snap’s earnings call Thursday. “While we are pleased with our progress given the macroeconomic environment, we also recognize that we have a significant amount of work to do to realize our long-term opportunity.”
Snap reported revenues of $1.06 billion from January through March, a 38% improvement from a year earlier. Daily active users jumped 18% year-over-year to 332 million. After reporting its first-ever profitable quarter to close 2021, Snap lost $360 million during the first quarter of this year, compared to a $287 million loss in the year-earlier period.
The company acknowledged that economic headwinds from factors like inflation and Russia’s invasion of Ukraine may not go away soon. The operating environment ahead “could be even more challenging, leading to further campaign pauses or advertiser budget reductions,” Snap CFO Derek Anderson said.
Snap is still grappling with Apple’s decision to restrict how users are tracked on mobile devices. Beginning in April, Apple allowed consumers to opt out of tracking by software apps, making it harder for them to effectively target users with ads. Snap chief business officer Jeremi Gordon said the social media firm is working to convince advertisers to use Snap’s improved ad measurement tools, developed in the wake of Apple’s privacy changes, to prove their campaigns are effective without the availability of users’ personal information.
The company is also contending with the rise of TikTok, the Culver City-based video sharing app that was the most visited website in the world last year. TikTok recently surpassed Snapchat as the most popular social media app among teens, according to the latest annual survey from investment bank Piper Sandler. TikTok is also expected to generate more ad revenue than Snapchat and Twitter combined this year, Insider Intelligence researchers recently predicted.
If TikTok is taking a bigger slice of advertising budgets these days, it at least inspired one of Snap’s fastest growing features. The company’s TikTok-like short form video feed, called Spotlight, has seen total time spent by users increase 230% year-over-year. Snap has started testing ways to insert ads on Spotlight, executives on the call said.
But Snap’s most ambitious advertising push remains in augmented reality. Some of its bets in that space are already paying off, such as features that let people virtually try on clothes with their smartphones.
“We found that by partnering with retailers and fashion brands, we can actually use their real products in augmented reality,” Spiegel said on the call. “It dramatically improves conversion for those businesses and so can lead to higher sales.”
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Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.
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