How Twitter And Snap’s Weak Earnings Show Social Media’s Struggles In A Changing Market

Filed in Business by on July 22, 2022 0 Comments

Twitter and Snap may have hoped to share more upbeat news about their earnings situations, but the numbers spoke for themselves.

On Friday, Twitter reported that its revenue dipped to $1.18 billion from $1.19 billion a year ago. Though its revenue from advertising saw a 2% rise, the company saw its shares fall on the back of its shrunken revenue and concerns over Elon Musk’s decision to terminate his $44 billion takeover deal.

The world’s richest man walked away from the deal earlier this month after accusing Twitter of not sharing its full data on the spam accounts its platform hosts, but the company is suing to complete the merger. A trial is set to begin in October.

Snap’s story is darker. In its Q2 earnings report on Thursday, the company announced its weakest quarterly sales growth period since it went public in 2017. According to the the Wall Street Journal, its year-on-year sales growth in Q2 2022 was 13% lower than even during the start of the COVID-19 pandemic when it plunged 17%. As of Friday, its shares had tumbled by about 38%. The social media company has not concealed its dissatisfaction with its performance.

“We are not satisfied with the results we are delivering, regardless of the current headwinds,” Snap said in a statement.

These results quickly impacted other social media companies, including Meta, Pinterest and Google’s parent company Alphabet, who saw their shares dip after hours on Thursday. What Twitter and Snap’s recent woes highlight is how social media companies, once among the highest growth stocks on Wall Street, are being buffeted by a changing market ecosystem that is cutting into their core business models.

Across the market, businesses have been bracing themselves for fears of an oncoming recession amid high inflation and a tighter monetary environment, and social media companies have not been immune. The dollar’s surge has ripped into international revenue companies are collecting while the advertising market has been stuck adapting to recent changes to Apple’s iOS that make it more difficult for social media giants to target their ads. New competition in the form of TikTok has also left rivals scrambling for ways to keep up in terms of monetization and user engagement.

All of these factors played apart in Snap’s recent woes. The company itself admitted that the broader macroeconomic picture contributed to a weak second quarter and that “increasing competition for advertising dollars that are now growing more slowly.” These factors are creating enough uncertainty that the company declined to issue guidance on the upcoming quarter.

“The Snap results came as a warning for other Big Tech names that rely on ad revenue,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said in a note to clients, as reported by MarketWatch.

As for Twitter, these same factors remain at play as the company stated in its earnings statement. However, the uncertainties created by Musk’s faltering takeover appeared to be weighing it down uniquely compared to its competitors.

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