Adpocalypse Now

Despite boasting just a few weeks ago of a 60 per cent rise in “upfront commitments” from advertising partners, Snap’s gloomy 8-K filing late on Monday has left many wondering which other ad-reliant companies will be the next to choke.

Snap’s warning that a deteriorating macroeconomic environment meant second-quarter revenue and EBITDA would come in “below the low end” of its guidance would not have gone down well in the best of times.

But these aren’t those, and shares in the social media company are down 41 per cent at pixel time.

Rivals Meta, Alphabet and Twitter all suffered as a result, as well as big traditional ad companies like Interpublic and Omnicom. Pinterest has taken a 22 per cent nosedive, while Twitter has drifted another 4.1 per cent away from Elon Musk’s primal scream increasingly theoretical but legally-agreed bid price.

Here’s a snapshot from Koyfin:

FT Alphaville is a fan of sellside hindsight (out of 42 analysts covering Snap there was only one sell recommendation before today, and 31 had it at buy or outperform), so we dipped into the latest notes on the Snapocalypse to see if people think this could be a harbinger for broader advertising problems. JPMorgan reckons so:

We believe SNAP’s cautious tone creates further downside risk to other online ad estimates. Overall, we believe the headwinds impacting SNAP’s business are broad-based.

We believe GOOG, FB, & PINS may be experiencing similar headwinds given the challenging macro backdrop, creating further downside risk to estimates.

Morgan Stanley thinks much the same:

We expect all online ad platforms to feel some impact of a significant consumer pullback (due to the size of the online ad markets — 65% of total ad spending — and importance that consumer transactions to driving ad spend).

Some ad platforms will be hit harder than others. UBS note that while brand advertising accounts for around 40 per cent of Snap’s revenue, it accounts for 85 per cent of Twitter’s.

Barclay’s downgraded “most” advertising-exposed stocks way back in mid-March and hasn’t seen much since then to justify changing tack:

The debate is whether Snap weakness, which logically should be earlier than other media owners as they are more exposed to experimental display budgets, will come to other advertising-exposed stocks. Our answer is that it is likely.

Neil Campling at Mirabaud meanwhile thinks it’s the smaller ad companies that have the most to fear:

There are the obvious companies which people will think could see the same issues as SNAP! Including Meta, Alphabet, Pinterest, Etsy and so on. But what about the ad tech and marketing tech companies — if the digital ad companies, SNAP, Facebook etc catch a cold . . . these companies could catch flu.

Goldman Sachs is more upbeat:

SNAP’s results & mgmt commentary has historically been more volatile in nature compared to large cap names (such as FB and GOOGL) given their scale, level of platform maturity & size of its advertiser base.

But admits it hasn’t done its homework:

Unfortunately, we have only recently started our own quarterly industry checks to better understand/frame SNAP’s idiosyncratic comments and/or a wider sub-sector impact (though the early industry checks, especially for Google Search and Meta, do not point to a similar rate of change QTD in April/May)

Snap accounts for less than 1 per cent of the $520bn global digital ad market. But if the big banks are to be believed, its forecast on Monday will have worried rivals large and small.

Source: Financial Times