Digital advertising storm gathers as Snap reports headwinds

Chris Pash
By Chris Pash | 24 October 2022
 
Credit: Max LaRochelle via Unsplash

Shares in digital media platforms fell after Snap reported slow growth in advertising revenue with brands pulling back their budgets in the face of deteriorating economic conditions.

Bloomberg reported a market value loss of $US35 billion as investors sold social media shares on Friday.

Snap reported revenue growth of 6% to $US1.13 billion in the September quarter, its slowest rate since its stock exchange listing five years ago.

The news cast a shadow over the digital media sector. Snap’s shares dropped as much as 28% at one point. Fellow digital media companies Meta, Alphabet (Google) and Pinterest followed on a slide.

Google and Meta announce quarterly results next week. Both have been reported to be looking at costs and slowing or freezing hiring

In Australia, digital ad spend is running strong, according to Standard Media Index (SMI) numbers. In August, SMI data put digital higher compared to last year. September numbers haven't been finalised but are expected to be up again. 

Snap says advertisers across many industries are decreasing marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures and rising costs of capital.

Businesses are experiencing input cost pressure due to inflation.

“We have observed reduced campaign budgets as businesses seek to offset input cost pressures,” says Snap.

“In many high growth sectors, businesses are reassessing investment levels amid the rising cost of capital.

“We experience this on our advertising platform in the form of decreased brand-oriented advertising spending, but also in the form of lower bids per action and lower overall campaign budgets.”

In a letter to shareholders, Snap said: “We are using this period of reduced demand to pull forward and accelerate changes to our advertising platform and auction dynamics that we believe will deliver better results for our advertising partners over the long term.

“We are working closely with our advertising partners through these changes, so that we can continue to deliver strong returns on advertising spend, which is especially important during such a challenging time.”

“While we are facing near-term headwinds to our revenue growth, we remain optimistic about our long-term opportunity based on the growth of our community and engagement.”

Snap had already announced a cut in staff numbers following “more challenging than we expected” June quarter results.

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