Snap shares fall sharply as weak outlook heightens ad competition concerns

By Deborah Mary Sophia

(Reuters) – Snap shares fell 22% 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 growth in ad spending across some sectors, including retail and technology, Snap continues to struggle, underscoring the weakness in those industries.

Meanwhile, Meta reported a surge in advertising demand and provided an upbeat third-quarter sales outlook, while Alphabet’s ad sales rose 11%, helped by events including the Paris Olympics and elections around the world.

“Everyone is fighting for audience attention. Competitors, including Big Tech, are aggressively increasing their online advertising efforts. Now that Amazon and Netflix are looking to flex their muscles, it will be harder for Snap and others to drive engagement,” said Paolo Pescatore, an analyst at PP Foresight.

Snap, which derives most of its revenue from advertising, expects to lose more than $4.6 billion in market value if losses continue.

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

“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)