Dismal ad spend on social media drives shares down

Shares of social media firms fell sharply on Friday as Twitter joined the Snapchat owner in signalling a cutback in digital ad spend as economic growth sputters.

Pinterest plunged 7.5%, Facebook-owner Meta Platforms dropped 4.6%, Google-owner Alphabet, which also sells ads online, fell 2.1%.

At current prices Pinterest, Meta, Alphabet and Snap were collectively set to lose about $36bn in market value.

Twitter also blamed its ongoing battle to close its $44bn acquisition by Elon Musk for the surprise fall in quarterly revenue. The microblogging site’s shares were marginally higher.

Advertisers have pared back spending amid rising interest rates and surging inflation as some of them struggle with labour shortages and supply chain disruptions, Snap said on Thursday.

“If you want proof that companies are nervous about the economic outlook, just look at how media platforms and marketing agencies are bemoaning a tougher advertising market,” AJ Bell investment director Russ Mould said.

Investors are bracing for the slowest global revenue growth in the history of the social media sector as Apple’s privacy changes further cloud outlook.

Snap’s shares were down 34.6% and were the most heavily traded across US exchanges, as the company said it was looking for new sources of revenue to grow.

The Snapchat owner’s weak quarterly outlook confirm fears that ad spending is worsening, RBC Capital Markets said in a note.

“Unfortunately for Snap and the digital ad sector, we believe there are signs of further ad spending cuts.”

Meta and Alphabet are slated to post quarterly results next week, while Pinterest is set to report second-quarter results on August 1. 

Reuters