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Snap was once the hottest app. Now it’s getting crushed.

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CEO of Snap Inc. Evan Spiegel presents at the livestreamed Snap Partner Summit 2022 on April 28, 2022.Snap Inc CEO Evan Spiegel is seeing the app’s digital ads business crater.

Photo by Snap, Inc./Getty Images for Snap, Inc.

  • Snap’s ads business is cratering, partly because of privacy changes by Apple.
  • Apple has made it easier for users to opt out of ad-tracking, hurting revenue for firms like Snap.
  • Snap hot reputation has receded as TikTok and Instagram became more popular and buzzier.

Snap is learning a harsh lesson: Apple makes the rules now. 

In an investor letter on Tuesday, the Snapchat owner forecast a bleak drop in revenue of up to 10% by the end of March as it faces a flailing digital ads market. It isn’t just the deteriorating economy, but the lasting effects of Apple’s privacy changes in 2021.

As the owner of the App Store, Apple is a gatekeeper to any developer — including Snap — wanting to sell their wares to its lucrative audience of iPhone and iPad users, particularly in the US. And in late 2021, Apple ushered in changes to privacy settings that made it much more difficult for apps to track users — tracking that is pretty valuable to any service funded by ads, like Snapchat.

It was a direct attack on Snap’s (and Meta and Google’s) most lucrative revenue stream. Social media businesses rely heavily on targeted ads as an alternative to charging for their services. But as Insider’s Lara O’Reilly wrote last year, most people are opting out of said targeting. Snap’s, and others’, offerings are less attractive as a result.

In the months running up to Apple’s ad changes, Snap’s stock hit a high of $83. It’s now less than $10.

And of the $1.3 billion the firm generated in its fourth quarter of 2022, $880 million came from North America, where Apple’s iOS is the overwhelming preference over Google’s Android system. Snap remains massively dependent on a company playing shogun. 

Snap’s ads business is gloomy

Snap said Tuesday that revenue stayed flat year-on-year in the quarter as a result of an “11% year-over-year decline” in its “brand-oriented business” – a platform used by popular brands to target users.

Though the firm points to “macroeconomic headwinds” and “increased competition” as factors hitting revenue growth, the bigger challenge it points to is “platform policy changes” — shorthand for Apple’s altered privacy rules.

Although it wants to find other revenue streams through Snapchat+, a subscription service that added more than 2 million subscribers since its August launch, and other features, it’s still mostly dependent on ads.

The firm is trying to adapt and talked up changes it is making to its direct response ad platform, a type of marketing that encourages users to follow a specific action such as signing up for something.

This won’t be enough to convince investors. Analysts at Jefferies said they were “concerned that Snap’s issues are intensifying.”

The future looks grim

Apple’s rule changes are more of a whammy for Snap than its competitors.

Meta, of course, has been hurt significantly by Apple’s changes (Mark Zuckerberg said the changes could cost his company around $10 billion in 2022). But as one of the digital ad duopoly alongside Google, it has an advantage as an incumbent. 

Snap CEO Evan Spiegel said the company ended 2022 with 375 million daily active users, a drop in the ocean of the giant platforms Snapchat competes with. Its net loss for the year was $1.4 billion.

Spiegel faces some unpalatable decisions.

One might involve cutting fat like its AR glasses project (a high-cost technology that looks increasingly doomed to fail). Another might be a further wave of layoffs

Yet another option may be to sell, as TikTok, Meta, and Google siphon away ad dollars in the downturn. Either that — or quietly vanish like its ghost logo.

Read the original article on Business Insider

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