In Snap’s earnings results announced Thursday (July 21), the social media company recorded its weakest-ever quarterly sales growth, where sales were up 13% year on year to $1.1 billion.
But beyond the top-line growth deceleration, where years ago that metric had been up triple-digit percentage points (and the compound annual growth rate, or CAGR, had been 50%), lies a deeper set of pressures that served to send the shares crashing nearly 40% Friday (July 22), extending a 10-month, 90% slump that has seen Snap’s market value shrink to $16 Billion from a peak of more than $140 Billion last September.
Yes, the company has decided to cut spending. Yes, the digital advertising market is seeing competition. But the steep drop, and the tens of billions of dollars in lost market cap has spread far beyond Snap, and the ‘sympathy sell-off’ seen across other platforms speaks to something larger.
Simply put, Apple has changed its privacy policies, and as a result, users can deny permission to be tracked.Indeed, as management noted in the Snap investor letter released Thursday after the market closed, “platform policy changes have upended more than a decade of advertising industry standards, and macroeconomic challenges have disrupted many of the industry segments that have been most critical to the growing demand for our advertising solutions. We are also seeing increasing competition for advertising dollars that are now growing more slowly.”
And during the question-and-answer session with analysts, Snap Chief Financial Officer Derek Andersen said “the deceleration began with the platform policy changes implemented in Q3 of last year.” The changes are impacting the traditional models that are “used to drive the direct response to advertising business, as well as the tools used to measure the returns from that direct response advertising.”
Last year, Apple introduced its App Tracking Transparency system that lets users have the choice as to whether third-party apps can track them. The changes wrought to the iOS have helped to disrupt at least some of the activity seen with Snap’s advertising partners.
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