Meta is trouncing Snap in Digital ads — here’s why

The
online
ad
market
is
bouncing
back.
But
the
spoils
are
not
being
evenly
shared.

After


Meta
blew
away
Wall
Street
estimates
last
week
in
its

fourth-quarter
earnings
report,
pushing
the
stock
to
a
record,
smaller
rival


Snap
came
up
short
on
Tuesday,
sending
investors

rushing
for
the
exits.

Meta’s
ad
business,
which
includes
Facebook
and
Instagram,
grew
24%
from
a
year
earlier,
lifting
the
company
to
its
fastest
rate
of
expansion
since
mid-2021.
Snap
reported
an
increase
of
just
5%
year-over-year,
its
sixth
straight
quarter
of
single-digit
growth
or
a
decline
in
sales.
That’s
slower
than
advertising
growth
at


Google,


Amazon
and


Microsoft
in
addition
to
Meta.

Based
on
investors’
reactions,
Snap
is
headed
for
one
of
its
worst
days
on
the
market
since
its
debut
seven
years
ago.
The
stock
dropped
33%
in
extended
trading
to
$11.75.
Its
two
biggest
one-day
declines
were
a
43%
drop
in
May
2022
and
a
39%
plunge
two
months
later.

Meta,
by
contrast,
soared
20%
on
Friday
after
the
company
reported
a
tripling
in
profit,
beat
estimates
on
the
top
and
bottom
lines,
issued
an
optimistic
forecast
and
announced
that
it’s

paying
a
dividend
for
the
first
time.

“We’re
seeing
the
bigger
companies
get
bigger
and
smaller
companies
are
slower
to
rebound,”
said
Jasmine
Enberg,
principal
analyst
at
Insider
Intelligence.
“Snap
is
one
of
those”
in
the
latter
camp,
she
said.

For
the
first
quarter,
Snap
projected
revenue
of
$1.095
billion
to
$1.135
billion,
which
would
equal
growth
of
between
about
11%
and
15%.
The
middle
of
the
range
—
$1.115
billion
—
was
just
below
analysts’
average
estimate
of
$1.117
billion.

Broadly,
the
digital
ad
market
is

recovering
from
a
brutal
2022,
when
soaring
inflation
and
rising
interest
rates
led
brands
to
reel
in
spending.
Now
ad
platforms
are
seeing
improvements
from
a
more
stable
economy
along
with
upcoming
events
like
the
2024
Olympics
in
Paris
and
the
the
presidential
election
later
this
year.

As
Enberg
noted,
“the
rebound
has
been
uneven”
and
has
benefited
Meta
and
other
giant
tech
companies
like
Alphabet
and
Amazon,
which
all
reported

advertising
growth
in
the
double
digits
for
the
fourth
quarter.

On
Snap’s
earnings
call
on
Tuesday,
CEO
Evan
Spiegel
faced
questions
from
analysts
about
why
the
company
is
lagging
behind
competitors.

Rich
Greenfield
of
LightShed
Partners
asked
Spiegel
if
Snap’s
smaller
size
compared
to
Meta
represents
“a
fundamental
long-term
issue.”
Spiegel
responded
by
saying
that
Snap
is
“certainly
one
of
the
largest
Internet
services,”
and
while
some
platforms
are
bigger,
“I
think
there’s
enormous
opportunity
for
us
to
continue
to
grow
our
business.”

Barclays
analyst
Ross
Sandler
asked
Spiegel,
“Why
aren’t
we
seeing
more
progress
and
getting
that
growth
rate
up
to
the
levels
of
the
broader
digital
ad
industry?”

Spiegel
started
the
answer
by
discussing
his
excitement
around
“the
progress
we’re
seeing
especially
in
our
lower
funnel
business,”
referring
to
the
upgraded
capabilities
of
its
online
advertising
platform.

However,
he
acknowledged
some
level
of
disappointment.

“Obviously
we
wish
we
were
moving
faster,”
Spiegel
said.
“But
we’re
working
as
hard
as
we
can
and
you
know
we’re
pleased
by
what
we’re
seeing
in
the
direct-response
business.”

Both
Meta
and
Snap
were
hit
hard
in
2022
due
to
a
weakening
ad
market
and


Apple’s
iOS
privacy
update,
which
made
it

harder
for
social
media
companies
to
target
users.
Both
companies
said
they
were
rebuilding
their
ad
technology
in
response
and
told
investors
that
they
were
pouring
money
into
artificial
intelligence.

Meta
is
seeing
the
benefits,
sparked
by
a

surge
in
spending
from
Chinese
retailers,
which
are
trying
to
reach
the
company’s
billions
of
users
spread
across
the
globe.
Meta
has
2.11
billion
daily
active
users,
compared
with
414
million
for
Snap.

Spiegel
echoed
commentary
from
prior
quarters
and
said
Snap
is
“investing
heavily”
into
machine
learning
and
AI
technologies
to
enhance
its
online
ad
platform.

Enberg
told
CNBC
that,
based
on
feedback
she’s
heard
from
advertisers,
Meta
is
further
ahead
in
its
development.
And
the
company’s
size
provides
an
inherent
advantage.

“Meta’s
platforms
are
much
bigger
than
Snapchat,
meaning
that
they
have
more
data
and
users
to
work
with
as
they’re
rebuilding
it,”
Enberg
said.
“Snap
has
clearly
made
progress,
and
we
saw
some
of
that
in
its
earnings,
both
this
quarter
and
last
quarter,
but
it
seems
to
be
taking
a
longer
time
for
the
company.”

Snap
has
recently
tried
to
distance
itself
from
the
broader
social
media
universe
and
has
pitched
itself
as
more
of
a
messaging
company,
Enberg
said.
The
company
disclosed
sales
in
its
Snapchat+
subscription
service
for
the
first
time
and
said
it
had
an
annualized
revenue
run
rate
of
$249
million
in
2023.
The
service
now
has
7
million
subscribers,
up
from
5
million
in
the
previous
quarter.
Snap
debuted
the
product
in
2022
for
$3.99
a
month.

But
revenue
from
subscriptions
is
currently
minimal.
Advertising
is
still
what
matters,
and
“the
reality
is
that
it’s
competing
for
the
same
social
dollars,”
Enberg
said.

“I
think
the
confidence
level
from
investors
in
Snap
is
concerning
going
forward,”
she
said.

WATCH:

Meta
is
too
optimistic
on
revenue
and
cost
growth
in
2024.