An exodus of advertising revenue from popular online companies has led to tech stocks plummeting today, as experts warn that advertisers are rolling back marketing due to less customer demand, as the cost of living continues to eat into consumer wallets.
Tech giant Alphabet reported falling advertising revenue in April, with Snapchat’s CEO issuing warnings of similar trends across its platform.
US markets took a brutal beating, as Snapchat shares tumbled 31% in after-hours trading, Meta Platforms dropped 7%, Pintrest shares fell 12% and Alphabet dipped 4%.
“Advertising spend typically tracks economic activity. When times are good, companies are confident to spend heavily to promote their products and services,” said AJ Bell investment director Russ Mould.
“When the outlook is gloomier, advertising spend is pared back. After all, why splash the cash on promotions if fewer people are going to open their wallets?”
Snapchat Spirals
Snapchat reported a lowered revenue and profits outlook for June, pinning the blame squarely on the spiralling macroeconomic environment as analysts proposed that advertising revenue had hit its peak for the current time.
The tech company currently trades below its $17 flotation price, and has plummeted 80% from its peak at September 2021, as a result of its second profit warning after Q2, which signals a bleak economic outlook for the firm.
Snapchat has also faced problems in its advertising rollout linked to Apple’s recent privacy and data protection guidelines, which stipulate that app developers must gain permission from a device operator to access their unique tracking number.
If the user denies access, it subsequently stymies Snapchat’s tailored advertising, which strikes a significant blow to the company’s already struggling advertising revenue.
“Whether Snap’s problems lie with the economy weighing on customers’ willingness to advertise, and or their growing concerns as to whether they will get an adequate return on that spending, remains to be seen,” said Mould.
“But what is clear is that Snap is not having much joy in turning new users into more profits.”
Fed next step
The US market is set to pivot its focus towards the Federal Reserve, as investors await an update concerning how Fed chair Jerome Powell intends to handle a rise in interest rates and how it will manage its bond holdings.
“With the era of cheap money hurtling to an end the focus will be on a speech from Jerome Powell, the chair of the Federal Reserve later, with investors keen to glean any new titbit of information about just how far and fast the US central bank will go in raising rates and offloading its mass bond holdings,” said Hargreaves Lansdown senior investment and markets analyst Susannah Streeter.
