Shares of the Snapchat owner fell 13% on a dour revenue forecast, which the company blamed on a weak economy and stiff competition. But Snap’s direct response advertising business, which is key for market leaders Meta and Google, was a bright spot.
Sales from the business rose 4% in the fourth quarter, Snap said.
“Snap is impacted by the reality that it has significant brand advertising exposure (which is getting hit harder than direct response),” said Evercore ISI analyst Mark Mahaney.
Headwinds for Meta and Google could be notably less severe, he said.
Alphabet’s Google, the world’s largest digital advertising platform, has long fared better than other ad-dependent companies because brands deem ads on Google searches crucial to driving website visits or other consumer actions.
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Meta has said the bulk of its revenue also comes from direct response advertising. Facebook and Instagram reach billions of users, turning them into a key part of the marketing strategies of many brands. Snap’s direct response performance was a more positive takeaway for Meta than Alphabet, said CFRA Research analyst Angelo Zino, pointing to Meta’s progress with measurement, optimization and artificial intelligence enhancements on its platform.
Snap’s shares were trading at $10 on Wednesday. The company’s weak outlook pulled down shares of Meta and Pinterest, which also earns revenue by selling digital advertising.
Alphabet will report results on Thursday, and analysts expect revenue to be unchanged from a year earlier.
Snap’s challenges, including privacy changes on Apple Inc devices that have made it harder for marketers to collect data, are not unique to the company. But it has the “added challenge of being a small player,” said Jasmine Enberg, principal analyst at Insider Intelligence.
