Shares in Snapchat’s parent company have fallen 25% after it confirmed investors’ fears of a slowdown in advertising revenue for social media firms.
Snap painted a grim picture of the effects of a weakening economy on social media in quarterly results on Thursday and declined to make a revenue forecast in “incredibly challenging” conditions, hitting its share price in after hours trading and setting off a chain reaction among listed rivals.
Snap, which generates more than two-thirds of its revenue in North America, said some advertisers continued to face supply-chain disruptions and labour shortages, and many others were contending with rising costs amid record inflation, which has led to cuts in spending on advertising.
Snap’s revenue for the second quarter ending on 30 June was $1.11bn (£930m), missing analyst expectations of $1.14bn, which pushed its shares down by a quarter to $12.33. The figure grew 13% from the prior-year quarter. Snap said revenue in the current third quarter was flat compared with the prior year.
The California-based company said it would significantly slow hiring, invest in its advertising business and find new sources of revenue in order to grow at a faster pace. Advertising is Snap’s main source of revenue.
Facebook owner Meta, Google owner Alphabet and other companies that sell online ads lost about $80bn in combined stock market value on Thursday after Snap’s results. The company is normally one of the first of the social media firms to report second-quarter earnings and is viewed as a bellwether for similar stocks.
Investors are expecting the slowest-ever pace of growth for social media ad revenue this year, as rising inflation and other economic woes cause brands to slash their marketing
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