What does Snapchat’s profit warning mean for the industry?

Sahail Ashraf posted on 8 June 2022

Snap warned about a slump in revenue recently. But what does this mean for social media marketing as a whole?

Towards the end of May Snap Inc (owner of Snapchat) issued a profit warning. The news was not good at all. Snap Inc stated that it would struggle to meet its revenue predictions for this financial quarter. The fallout was immediate, with the share price plummeting and the industry as a whole feeling quite concerned about the whole thing. 

Like many companies and brands in all industries, Snap stated a number of reasons for the fall in revenue. The Ukraine war, COVID and economic pressures were all mentioned. And while the company saw some positive signs during the pandemic, the general picture is one of downturn. 

“Like many companies, we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, platform policy changes, the impact of the war in Ukraine, and more.”  Evan Spiegel, Snap CEO.

At one point, Snap’s share price was below its IPO price. And that’s not good.

Ripples of worry

There have been a number of global issues that have affected economies over the last couple of years. But aside from pandemics and so on, one or two other concerns seem to point to the real reason why Snap is suffering so much.

Apple made a big leap forward last year by making it harder for advertisers to reach audiences with specific ads. The Identifier for Advertisers (IDFA) rules meant that revenue simply fell, as whole chunks of audiences decided not to allow their activity to be tracked.

Clearly, Apple made these changes for the benefit of the customer, but it has meant that revenues have fallen. Alongside that financial worry, there is also the growing cultural change. People are generally feeling a little more wary around their online privacy, and Apple simply highlighted the problem.

This highlighting of the problem has affected user growth. While the impact has not been catastrophic it has still meant that Snap has seen a reduction in the number of people who use their app, and see ads.

With Snap relying on ad revenue, it’s not hard to see that IDFA has had some role to play in the slump. But that isn’t the only reason that we can suggest for Snap suffering so much. 

Data created by tracking across websites and apps is under further threat. Google is going to suspend its support for third-party tracking (cookies) by 2023, which means that more advertisers will ditch Chrome. Mozilla has already done this with Firefox and Apple with Safari.

All this means that there is a sea change taking place. And we think that means there are rough times ahead for every social media platform that uses ads for revenue (which means every platform, basically).

Spiegel talked about the pandemic, war in Ukraine and so on. These things affect everybody. The privacy and tracking issue (especially when Google makes its move) will affect social media platforms and how they make their money. 

Brands will have to rethink aspects of their social media marketing. If data on audiences is in shorter supply due to privacy changes, then first-party data will become more important. So will establishing relationships with audiences that can foster trust and a willingness to surrender more data. 

And let’s not forget another problem that Snap’s issues could cause. With revenue falling, it won’t be too long before social media ad systems require a higher investment from brands.

In other words, hold onto your hats. It’s going to get a little bumpy.

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