Why It Matters: The digital ad slump is bouncing back, but not for everyone.
Falling demand for Google’s search ads and Facebook’s display ads has stabilized, with the digital ad giants each reporting a slight uptick in growth this week.
But Snap, a smaller company, still faces stiff competition from the likes of TikTok. Snap has also been hit by privacy changes made by Apple, which make it harder for advertisers to collect data and show highly targeted pitches.
Others are also continuing to grapple with the ad slump. Advertising revenue at YouTube, a subsidiary of Google, declined 3 percent in the first three months of the year.
Background: Tough times.
Snap was founded in 2011 and went public in 2017. It is a growth stock, meaning investors expect it to expand rapidly. As recently as 2021, Snap reported revenue growth that doubled its previous year’s results. That has slowed dramatically over the last year amid macroeconomic uncertainty in the face of inflation and rising interest rates, culminating in this quarter’s decline.
Snap’s stock fell 65 percent over the last year, dragging its valuation below $16 billion earlier this week. That’s less than what venture capitalists valued the company at before it went public in 2017.
What’s Next: Subscriptions and A.I.
Like much of the tech industry, Snap has spent the last year laying off staff and paring back creative and ambitious side projects. And like much of the tech industry, it is going big on artificial intelligence.
Snap recently unveiled a chatbot called My AI that allows Snapchat users to chat with the bot individually or with a group. The bot, powered by OpenAI, was met with some criticism from users. Snap said its users were sending more than two million messages a day to the bot.
Snap is also pushing for more revenue from subscriptions. Three million users pay $4 a month for Snapchat+, which gives them access to extra features.
Jasmine Enberg, an analyst with Insider Intelligence, wrote in a report that the company had not yet translated the excitement around its new products into revenue, which did not change “the reality that its core business is struggling,” she wrote.
