Meta is trouncing Snap in Digital ads — here's why


In this screengrab, CEO of Snap Inc. Evan Spiegel takes the stage at the virtual Snap Partner Summit 2021 on May 20, 2021 in Los Angeles.

Snap Partner Summit 2021 – Snap Inc | Getty Images

The online ad market is bouncing back. But the spoils are not being evenly shared.

After Meta blew away Wall Street estimates last week in its fourth-quarter earnings report, pushing the stock to a record, smaller rival Snap came up short on Tuesday, sending investors rushing for the exits.

Meta’s ad business, which includes Facebook and Instagram, grew 24% from a year earlier, lifting the company to its fastest rate of expansion since mid-2021. Snap reported an increase of just 5% year-over-year, its sixth straight quarter of single-digit growth or a decline in sales. That’s slower than advertising growth at Google, Amazon and Microsoft in addition to Meta.

Based on investors’ reactions, Snap is headed for one of its worst days on the market since its debut seven years ago. The stock dropped 33% in extended trading to $11.75. Its two biggest one-day declines were a 43% drop in May 2022 and a 39% plunge two months later.

Meta, by contrast, soared 20% on Friday after the company reported a tripling in profit, beat estimates on the top and bottom lines, issued an optimistic forecast and announced that it’s paying a dividend for the first time.

“We’re seeing the bigger companies get bigger and smaller companies are slower to rebound,” said Jasmine Enberg, principal analyst at Insider Intelligence. “Snap is one of those” in the latter camp, she said.

For the first quarter, Snap projected revenue of $1.095 billion to $1.135 billion, which would equal growth of between about 11% and 15%. The middle of the range — $1.115 billion — was just below analysts’ average estimate of $1.117 billion.

Broadly, the digital ad market is recovering from a brutal 2022, when soaring inflation and rising interest rates led brands to reel in spending. Now ad platforms are seeing improvements from a more stable economy along with upcoming events like the 2024 Olympics in Paris and the the presidential election later this year.

As Enberg noted, “the rebound has been uneven” and has benefited Meta and other giant tech companies like Alphabet and Amazon, which all reported advertising growth in the double digits for the fourth quarter.

On Snap’s earnings call on Tuesday, CEO Evan Spiegel faced questions from analysts about why the company is lagging behind competitors.

Rich Greenfield of LightShed Partners asked Spiegel if Snap’s smaller size compared to Meta represents “a fundamental long-term issue.” Spiegel responded by saying that Snap is “certainly one of the largest Internet services,” and while some platforms are bigger, “I think there’s enormous opportunity for us to continue to grow our business.”

Barclays analyst Ross Sandler asked Spiegel, “Why aren’t we seeing more progress and getting that growth rate up to the levels of the broader digital ad industry?”

‘Wish we were moving faster’

UKRAINE – 2023/03/11: In this photo illustration, Temu, LLC logo seen on a smartphone and on a pc screen. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)

Sopa Images | Lightrocket | Getty Images

Meta is seeing the benefits, sparked by a surge in spending from Chinese retailers, which are trying to reach the company’s billions of users spread across the globe. Meta has 2.11 billion daily active users on Facebook, compared with 414 million for Snap.

Spiegel echoed commentary from prior quarters and said Snap is “investing heavily” into machine learning and AI technologies to enhance its online ad platform.

Enberg told CNBC that, based on feedback she’s heard from advertisers, Meta is further ahead in its development. And the company’s size provides an inherent advantage.

“Meta’s platforms are much bigger than Snapchat, meaning that they have more data and users to work with as they’re rebuilding it,” Enberg said. “Snap has clearly made progress, and we saw some of that in its earnings, both this quarter and last quarter, but it seems to be taking a longer time for the company.”

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Snap has recently tried to distance itself from the broader social media universe and has pitched itself as more of a messaging company, Enberg said. The company disclosed sales in its Snapchat+ subscription service for the first time and said it had an annualized revenue run rate of $249 million in 2023. The service now has 7 million subscribers, up from 5 million in the previous quarter. Snap debuted the product in 2022 for $3.99 a month.

But revenue from subscriptions is currently minimal. Advertising is still what matters, and “the reality is that it’s competing for the same social dollars,” Enberg said.

“I think the confidence level from investors in Snap is concerning going forward,” she said.

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Image and article originally from www.cnbc.com. Read the original article here.