By Jon Swartz
Snap Inc. predicted a weaker holiday season than expected and pointed the finger at Apple Inc. and supply-chain constraints Thursday afternoon, and shares fell more than 20% in after-hours trading.
Snap /zigman2/quotes/205087158/composite SNAP +7.49% , the maker of photo messaging app Snapchat, said privacy changes imposed by Apple /zigman2/quotes/202934861/composite AAPL +6.98% on iOS devices hurt Snap’s ability to target and measure its digital advertising.
“Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July,” the company reported. “Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA (Apple’s unique device identifier for advertising) over the past decade.”
“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our ad partners to measure and manage their ad campaigns for iOS.”
In a 65-minute webcast Thursday, Snap Chief Executive Evan Spiegel described Apple’s changes to analysts as a “frustrating setback,” and said his advertising customers’ “tools were essentially rendered blind.”
“We’re now operating at the scale necessary to navigate significant headwinds, including changes to the iOS platform that impact the way advertising is targeted,measured, and optimized, as well as global supply chain issues and labor shortages impacting our partners,” Spiegel said in a statement .
Compounding matters, Snap said global supply chain disruptions and labor shortages caused companies to pull back on their advertising spending, and a cautious holiday forecast suggested fears that advertisers uncertain about their holiday supply would advertise.
Snap /zigman2/quotes/205087158/composite SNAP +7.49% announced a net loss of $71.9 million, or 5 cents a share, down from a loss of $199.8 million, or 14 cents a share a year ago and besting street predictions of a loss of 10 cents a share, according to analysts polled by FactSet. Snap’s sales improved 57% to $1.07 billion — the company’s first billion-dollar quarter — but they were lower than Street estimates of $1.1 billion.
Snap said it expects the Apple privacy changes and global supply chain disruptions to linger through the holiday season, typically the biggest of the year for advertising companies. Executives issued fourth-quarter revenue guidance of $1.165 billion to $1.205 billion, significantly short of the $1.36 billion projected on average by analysts polled on FactSet.
“The fact that these challenges are largely exogenous makes the provision of guidance particularly challenging and complex,” Snap Chief Financial Officer Derek Andersen said in the webcast late Thursday.
“(W)e still expect these headwinds to continue to impact our business throughout Q4 as the adoption of new measurement solutions will take time,” Andersen said. “It is still not clear what the longer term impact of the iOS platform changes may be, and this may not be clear until at least several months or more after the ecosystem stabilizes and advertisers are able to fully implement the new solutions we aredeveloping.”
Thursday’s precipitous drop in stock erased recent gains; Snap shares are up 50% so far this year, while the broader S&P 500 index /zigman2/quotes/210599714/realtime SPX +2.43% has improved 21% in 2021. Shares of Facebook Inc. /zigman2/quotes/205064656/composite FB +2.40% , by comparison, are up 25% this year, but they also fell in the extended session Thursday, by more than 6%. Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL +3.37% /zigman2/quotes/205453964/composite GOOG +3.23% , Twitter Inc. /zigman2/quotes/203180645/composite TWTR +4.23% and Pinterest Inc. /zigman2/quotes/211319641/composite PINS -0.15% also dropped in late trading.
The results — the first from a major social-media company during earnings season — are being closely watched by investors in the other social-media companies. Those companies, like Snap, are heavily dependent on digital advertising, which swooned/galloped in the September quarter, according to Wall Street analysts.
Snap reported 306 million daily active users in the third quarter, edging an average analyst forecast of 301.8 million, according to FactSet.
On Tuesday, Snap announced the launch of a global creative studio, called Arcadia, to help brands develop augmented reality advertising and experiences. The studio — which has already teamed up with Verizon Communications Inc. /zigman2/quotes/204980236/composite VZ +3.34% , Shake Shack Inc. /zigman2/quotes/209397077/composite SHAK +4.37% , and World Wrestling Entertainment Inc. /zigman2/quotes/207109722/composite WWE -0.27% — will partner with brands and creators to engage with Snapchat’s millennial and Gen Z audiences.
“Augmented reality is one of our most exciting long-term opportunities because it is simultaneously very early in its technological development and already used by hundreds of millions of people,” Spiegel said in the webcast. “More than 200 million people engage with AR every day on Snapchat, across a variety of use cases including entertainment, fashion, education, and the arts.”