In Snap earnings results announced Thursday (July 21), the social media company posted its weakest quarterly growth, with sales up 13% year over year to $1.1 billion.
But beyond the slowdown in top-line growth, where that metric rose three percentage points years ago (and had a compound annual growth rate of 50%), lurks a deeper set of pressures that sent stocks crashing nearly 40% on Friday (July 22).
Yes, the company decided to cut spending. Yes, the digital advertising market is experiencing competition. But the sharp drop, and tens of billions of dollars in lost market value that Bloomberg estimated was seen in sympathy across platforms, speaks to something bigger.
The key is that Apple has changed its privacy policies, and as a result, users can refuse permission to be tracked.
Platform policy changes
In fact, as management noted in a Snap investor letter released Thursday after the market closed, “Platform policy changes have changed more than a decade of advertising industry standards, and macroeconomic challenges have disrupted many of the industry sectors that were most critical to growth.” The demand for our advertising solutions. We are also seeing increased competition for advertising dollars which are now growing more slowly.”
During a question-and-answer session with analysts, Snap’s chief financial officer Derek Andersen said, “The slowdown began with the platform policy changes implemented in the third quarter of last year.” The changes affect traditional models “used to drive direct response advertising business, as well as tools used to measure revenue from direct response advertising.”
Last year, Apple introduced an app tracking transparency system that lets users choose whether third-party apps can track them. Changes to iOS have helped disable some activity seen with Snap ad partners.
See more: Data Privacy Day coincides with Apple ad tracking changes
Making it more difficult for advertisers to target users means that they may fall back on ad spend in a massively inflationary environment like the one we’re seeing today. In fact, management said in the latest Snap call that advertisers’ budgets and bids are trending downward.
Snap, for its part, is trying to monetize its model in various ways, with a nod to its direct response business, including first and third party metering solutions. The company is also striving for better ranking and improvement.
But it will take time, Andersen said, because “in terms of monetization, we’re up against a number of competitors that are very large and very sophisticated. So today, we’re seeing the overall ad pie growing at a slower rate.”
Meanwhile, Apple is in the midst of restructuring its services to strengthen its advertising presence.
Read more: Apple may renew services to focus on streaming and ads
Headwinds are growing, and for platforms, the “Apple problem” is also growing.