The online advertising market is experiencing a rebound, but the spoils are not being evenly shared. The latest earnings reports from social media giants Meta (formerly Facebook) and Snap reveal a stark contrast in their advertising growth. Meta’s ad business, which includes Facebook and Instagram, experienced a remarkable 24% growth from the previous year, positioning the company for its fastest expansion rate since mid-2021. In contrast, Snap reported only a 5% increase year-over-year, marking its sixth consecutive quarter of single-digit growth or sales decline. This sluggish growth puts Snap significantly behind advertising growth rates reported by industry leaders Google, Amazon, and Microsoft. Unsurprisingly, investors responded by fleeing Snap’s stock, causing a significant drop of 33% in extended trading.
Meta’s robust performance and record-breaking profits propelled its stock to new heights. Following the announcement of a tripling in profit, surpassing estimates on both the top and bottom lines, issuing an optimistic forecast, and introducing a dividend payment for the first time, Meta’s stock soared by 20%. Conversely, Snap’s underwhelming growth contributed to one of its worst market days since its debut seven years ago. The trajectory of their respective stocks speaks volumes about the diverging fortunes of these digital ad competitors. While Meta celebrates its success, Snap finds itself in a slump. As Jasmine Enberg, principal analyst at Insider Intelligence states, “We’re seeing the bigger companies get bigger, and smaller companies are slower to rebound. Snap is one of those smaller companies.”
Snap’s earning projections for the first quarter demonstrate that it faces an uphill battle in catching up to its competitors. Snap expects revenue growth between 11% and 15%, projecting a range of $1.095 billion to $1.135 billion. While this represents positive growth, analysts’ average estimate of $1.117 billion still places Snap below expectations. The uneven recovery within the digital advertising market has favored industry behemoths like Meta, Alphabet, and Amazon, all of whom reported double-digit growth in advertising during the fourth quarter. In contrast, Snap’s lackluster performance raises concerns among analysts, prompting questions about the company’s long-term viability in the face of more significant competitors.
Although Snap’s growth rate has been disappointing, CEO Evan Spiegel remains optimistic about the company’s potential. He asserts that while other platforms may be larger, Snap is still “one of the largest Internet services,” suggesting ample opportunities for future growth. Analysts, however, question why Snap is not keeping pace with the broader digital advertising industry. Spiegel points to Snap’s progress in its lower funnel business, referring to the enhanced capabilities of its online advertising platform. While expressing some level of disappointment, he notes that Snap is working diligently to advance its offerings and is pleased with the progress in its direct-response business.
Both Meta and Snap struggled in 2022 due to a weakening ad market and the impact of Apple’s iOS privacy update. The update made it more challenging for social media platforms to target users effectively. In response, both companies have focused on rebuilding their ad technology and investing in artificial intelligence. Meta has reaped the benefits of increased spending from Chinese retailers eager to tap into its vast user base of 2.11 billion daily active users worldwide. Snap, with significantly fewer daily active users at 414 million, is investing heavily in machine learning and AI technologies to enhance its online ad platform. However, analysts note that Meta, with its larger platforms and user base, enjoys a competitive advantage in this race. Snap has made progress but appears to be trailing behind due to the size differential.
Snap has attempted to distinguish itself from the broader social media landscape, positioning itself as more of a messaging company rather than a traditional social media platform. To support this distinction, Snap disclosed sales figures of its Snapchat+ subscription service for the first time. The company reported an annualized revenue run rate of $249 million in 2023 and an increase in subscribers from 5 million to 7 million in the previous quarter. Despite these gains, revenue from subscriptions remains minimal compared to advertising. As Enberg aptly notes, “the reality is that [Snap] is competing for the same social dollars.” The lack of investor confidence in Snap’s ability to compete effectively in this space raises concerns about its future prospects.
In the battle of online advertising dominance, Meta (Facebook) emerges as the clear winner, with impressive growth and soaring stock prices. Meanwhile, Snap faces significant challenges in keeping pace with its larger competitors and generating substantial advertising growth. The uneven rebound within the digital ad market has resulted in a disparity between the industry giants and smaller players like Snap. While Snap’s progress and investments in AI and machine learning are promising, it remains to be seen if the company can overcome its current obstacles and regain its footing in the highly competitive online advertising landscape.
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