Snap's earnings may hold positive news for Meta, Google

[February 01, 2023]  By Sheila Dang and Nivedita Balu

(Reuters) - Snap Inc blamed a poor economy and increased competition for its ho-hum quarterly earnings, but a rise in the key ad metric could mean good news for Facebook owner Meta Platforms and Alphabet, analysts said on Wednesday.

Snap said its direct response business geared towards driving product sales or website visits rose 4% in October-December. But, revenue from brand advertising, aimed at promoting a brand's image, declined 11%, the company said in its quarterly earnings report on Tuesday.

That could "be viewed as a healthy sign for Meta and Google," whose businesses are tuned to direct response advertisers, said Mark Shmulik, senior analyst at research firm Bernstein.

Alphabet's Google, the world's largest digital advertising platform, has long fared better than other ad-dependent companies because brands consider ads on Google searches crucial to driving website visits or other consumer actions.

Similarly, Meta has said in previous quarters that the bulk of its revenue comes from direct response advertising. Facebook and Instagram reach billions of users, turning them a key part of the marketing strategies of many brands.

"Snap is impacted by the reality that it has significant brand advertising exposure (which is getting hit harder than direct response)," said Evercore ISI analyst Mark Mahaney.

Headwinds for Meta and Google could be notably less severe, he added.

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

Snap's shares slumped 14% on Tuesday after it projected a decline in current-quarter revenue by as much as 10%. The shares extended the losses on Wednesday, falling about 15% premarket.

The weak outlook pulled down the shares of rivals Meta, Google, and Pinterest, which also earns revenue by selling digital advertising, on Tuesday.

Analysts expect Meta to report a 6.5% fall in December quarter revenue when it reports results on Wednesday, according to Refinitiv, its third consecutive quarter of decline.

Alphabet will report results on Thursday, and analysts expect revenue to be unchanged from a year earlier.

Snap's challenges, including privacy changes on Apple Inc devices that have made it harder for marketers to collect data, are not unique to the company. But it has the "added challenge of a being a small player," said Jasmine Enberg, principal analyst at Insider Intelligence.

"Advertisers are turning to tried and true platforms."

(Reporting by Sheila Dang in Dallas and Nivedita Balu in Bengaluru; Editing by Dhanya Ann Thoppil)
 

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