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Snap Raises Concerns In The Ad-Reliant Social Media Sector

Snap Raises Concerns In The Ad-Reliant Social Media Sector
Snap Inc shares fell nearly 30% in premarket trading on Friday, following the company's forecast of zero revenue growth, indicating that the social media sector, which is heavily reliant on digital advertising, is in for more pain.
Alphabet Inc, the parent company of YouTube, Meta Platform Inc, and Pinterest Inc all fell between 2 per cent and 7 per cent. Twitter Inc fell 8 per cent, weighed down by concerns about the security of billionaire Elon Musk's takeover bid.
Analysts rushed to lower their price targets on the stock, with Morgan Stanley lowering it to a Wall Street low of $7, below the stock's current price of $7.74.
As a result of declining consumer demand, brands have reduced marketing and advertising budgets, causing the digital ad space to suffer. Snap's warning only added to the anxiety.
This year, digital ad companies have collectively lost approximately $1 trillion in value, owing to intense competition from TikTok and challenges from Apple Inc's privacy changes to its iOS platform, which allow users to opt out of data tracking.
On Thursday, Snap reported its slowest revenue growth as a public company for the most recent quarter, and forecast no revenue growth for the traditionally busy holiday quarter.
Many advertisers see Snap, which sells ads through videos and a variety of filters, as a "experimental platform," and they tend to quickly shift their shrinking ad dollars to larger established platforms.
"A challenged macro continues to see ad buyers prioritize their larger, core platforms, namely Google and Meta, as they monitor consumer health," Bernstein analyst Mark Shmulik said, adding that ad buyers reducing their spend particularly on smaller experimental platforms.
Analysts are also worried about Snap's decision to cut 20 per cent of its workforce.
Analysts at Jefferies noted that Snap has increased headcount by more than 30% for four consecutive quarters, but expressed concern about the company's ability to achieve growth targets with a relatively small employee base.
Snap has lost approximately 77 per cent of its value this year, while Alphabet, Meta, and Pinterest have lost between 30 per cent and 60 per cent. Twitter, on the other hand, has risen 21 per cent on the prospect of billionaire Musk purchasing the company.
"We now believe that Snap will have difficulty remaining under control of its own destiny over the next six to nine months," MKM Partners analyst Rohit Kulkarni said.

Christopher J. Mitchell

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