(Reuters) – Shares of Snap slumped 17% premarket on Friday. This drop followed a dour forecast from the Snapchat parent. It reinforced Wall Street’s worries about the Snap ad competition. Concerns grew that Snap would continue to cede business to bigger rivals. #SnapAdCompetition
The social media firm forecast third-quarter results below market estimates late on Thursday, blaming soft demand from advertisers in consumer discretionary sectors.
“We aren’t confident of management’s ability to consistently execute over several quarters,” Roth MKM analyst Rohit Kulkarni said.
Snap’s weak targets highlight the growing chasm in the digital advertising market. Large platforms like Meta’s Facebook, Google, and TikTok dominate, making growth difficult for Snap and Pinterest.
Although Pinterest notably saw strong ad spend in a few industries including retail and technology, Snap has continued to struggle.
“The portion of the demand performance in Q2 that was particularly disappointing is some of the weakness that we’ve seen in particular consumer discretionary verticals, including technology, entertainment and retail,” Snap CFO Derek Andersen said on a post-earnings call.
Snap, which gets nearly all its revenue from advertising, looks set to lose more than $3.5 billion in market value, if premarket losses hold. #SnapAdCompetition
The stock, however, is known to swing wildly after earnings reports, having surged close to 28% in the prior earnings cycle and slumped more than 34% in the season before that.
Moreover, Snap’s situation reflects broader trends affecting smaller players in digital advertising. The fierce rivalry with platforms like TikTok and Instagram shows no signs of easing. Thus, the Snap ad competition is expected to remain fierce, putting further pressure on Snap’s growth prospects.
