Call it the “Apple problem”.
In Snap results announced Thursday (July 21), the social media company posted its weakest quarterly sales growth, where sales rose 13% year-on-year to $1.1 billion.
But looking beyond the deceleration in revenue growth, where years ago that metric had risen by triple-digit percentage points (and the compound annual growth rate, or CAGR, had been 50 %), lies a set of deeper pressures that served to send the shares crashing around 40% on Friday (July 22).
Yes, the company has decided to reduce its expenses. Yes, the digital advertising market is experiencing competition. But the steep drop and tens of billions of dollars in lost market capitalization that Bloomberg estimated was seen in sympathy across all platforms speaks to something bigger.
The key is that Apple has changed its privacy policies and therefore users can deny permission to be tracked.
Platform Policy Changes
Indeed, as management noted in Snap’s investor letter released Thursday after the market closed, “platform policy changes have upended more than a decade of ad industry standards. “, and macroeconomic challenges have disrupted many industry segments that have been most critical to growing demand for our advertising solutions. We are also seeing increasing competition for advertising dollars that are now growing more slowly.”
And during the Q&A session with analysts, Snap CFO Derek Andersen said “the deceleration started with the platform policy changes implemented in the third quarter of last year. “. The changes impact the traditional models that are “used to generate the direct response to advertising activity, as well as the tools used to measure the returns of that direct response advertising.”
Last year, Apple introduced its App Tracking Transparency system that lets users choose whether third-party apps can track them. The changes to iOS have helped disrupt at least some of the activity seen with Snap’s ad partners.
See more : Data Privacy Day coincides with changes to Apple’s ad tracking
Making it harder for advertisers to target users means they could cut ad spend in a wildly inflationary environment like the one we’re experiencing today. Indeed, management said on the last Snap call that advertiser budgets and bids were trending lower.
Snap, for its part, has tried to monetize its model in various ways, with a nod to its direct response business, including first- and third-party measurement solutions. The company also strives to improve rankings and optimization.
But that will take time, as Andersen said, because “in terms of monetization, we’re up against a number of very large, very sophisticated competitors. So today we see the global ad pie growing at a slower rate.
In the meantime, Apple is restructuring its services to strengthen its presence in advertising.
Read more: Apple may revamp its services to focus on streaming and ads
The headwinds are growing, and for platforms, the “Apple problem” is growing too.