Snap shares fall sharply as weak outlook heightens ad competition concerns

(Reuters) – Snap shares fell 17% in premarket trading on Friday after a gloomy outlook from Snapchat’s parent company fueled Wall Street fears that the company will continue to cede business to bigger rivals amid fierce advertising competition.

The social media company on Thursday evening forecast third-quarter results would fall short of market estimates, blaming weak demand from advertisers in consumer discretionary sectors.

“We are not confident that management will be able to consistently execute its plans over several quarters,” said Roth MKM analyst Rohit Kulkarni.

Snap’s weak targets further highlight the divide in the digital advertising market, which is dominated by large platforms like Meta’s Facebook and Instagram, Alphabet’s Google and Bytedance’s TikTok, making it harder for platforms like Snap and Pinterest to grow.

While Pinterest has seen significant ad spending across several industries, including retail and technology, Snap continues to struggle.

“The part of Q2 demand that was particularly disappointing was the weakness we saw across consumer discretionary verticals, including technology, entertainment and retail,” Snap Chief Financial Officer Derek Andersen said on a conference call after the results were announced.

Snap, which derives most of its revenue from advertising, is expected to lose more than $3.5 billion in market value if premarket losses persist.

However, the stock is known to fluctuate wildly following earnings reports – it was up nearly 28% in the previous earnings cycle and down more than 34% in the season before.

Meanwhile, Meta saw a surge in global advertising demand, which helped it meet promising third-quarter sales forecasts, while Alphabet’s advertising sales rose 11%, helped by events such as the Paris Olympics and elections around the world.

“Snapchat has always been a social platform with potential—exciting but also disruptive. And it looks like we’re still a little ways off from realizing that potential,” said Bernstein analyst Mark Shmulik.

(Reporting by Deborah Sophia in Bengaluru; Editing by Krishna Chandra Eluri)