Snap’s Gloomy Forecast Prompts Debate Over Trouble for Broader Advertising Market

Some Wall Street analysts interpreted the results as an ominous sign for ad spending across the board. Jefferies analyst

Brent Thill

said the downgrade in guidance “is indicative of a rapidly deteriorating macro environment that will likely impact the whole ad industry.”

Morgan Stanley analyst

Brian Nowak

likewise said he expected “all online ad platforms to feel some impact of a significant consumer pullback.”

Other analysts said Snap is a unique case, because the company’s growth expectations have been more aggressive than those of peers. “We may not see as significant estimates revisions for other names,” Raymond James analysts said in a note.

Snap’s warning weighed on tech stocks and companies throughout the ad world. Shares in

Facebook

FB -7.62%

parent Meta Platforms Inc. and Google parent

Alphabet Inc.

GOOG -5.14%

were down 9% and 6%, respectively midday Tuesday. Shares of ad agency holding companies

Omnicom Group Inc.

OMC -8.42%

and

Interpublic Group of Cos.

each fell about 9% in midday trading Tuesday, while online-ad middleman

Trade Desk Inc.

dropped 20%.

Inflation, supply-chain shortages and fears of a wider economic downturn could all play into companies’ decisions on how much to spend on advertising, analysts say. In a memo to staff, Mr. Spiegel said higher interest rates, labor disruptions and the impact of the war in Ukraine were also weighing on its business.

Brian Wieser,

global president of business intelligence at ad-buying company GroupM, said it is still unclear how economic uncertainty is shaking out in the ad market. Companies in certain sectors may slash ad spending in this environment, while those in other categories will actually raise spending.

VF Corp.

VFC -2.11%

, owner of apparel brands such as The North Face and Timberland, said Thursday it expected to increase the proportion of sales it allocates to ad spending.

Mr. Wieser noted that Snap, like other big digital-ad players, was due for some deceleration after a period of superfast growth that may have been unsustainable.

In addition to the macroeconomic conditions, most online companies are still grappling with the effects of

Apple Inc.’s

AAPL -1.92%

changes to its ad-tracking systems, which has limited how platforms collect data and measure the performance of marketing campaigns. Analysts said it was unclear how much Snap’s revised guidance was due to the continued fallout from those changes.

Following the lead of Meta and other tech companies, Snap also on Monday said it would slow hiring and push some of its planned staff additions to next year, as well as evaluate the remainder of its 2022 budget to look for additional cost savings. In his memo to staff, Mr. Spiegel said the company would be “continuing to invest across our business priorities, but in many cases doing so at a slower pace than we had planned given the operating environment.”

Snap shares have often been volatile. The price dipped below $5 in late 2018, only to roar back over $80 during the pandemic, as young people flocked to its flagship app Snapchat. The stock was trading just above $13 midday on Tuesday.

Write to Patience Haggin at [email protected]