Friday was a tough day for technology and social media stocks. Alphabet (GOOGL), Facebook (FB), Twitter (TWTR) and Pinterest (PINS) all fell by over 3%. But those plunges looked mild compared to the frenzied sell-off of Snap Inc. (SNAP), which fell a whopping 27% in its largest-ever intraday tumble.
Investor bearishness was driven by Snapchat’s warning in its third quarter earnings report (published Thursday) about Apple’s (AAPL) new data collection rules, which enable app users to decide whether apps can monitor their activities and share them with third-parties like advertisers.
“Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July,” said Snap CEO Evan Spiegel. “While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS.”
On the one hand, Apple’s new data-sharing policies are a legitimate concern. Snapchat is a smartphone app, and a large share of smartphones are iPhones. That, and in terms of revenue, Snapchat is basically a one-trick pony that relies on advertising dollars for the vast bulk of its revenue. If advertisers aren’t happy with their ability to track Snapchat ad campaigns, it threatens the very core of Snapchat’s business.
But on the other hand, Snapchat remains a growth machine, it continues to play well with the younger generations, and it faces far less regulatory pressure than its biggest competitor (Facebook).
For one, the sheer scale of Snapchat’s 27% sell-off suggests investors have become too desensitized to Snapchat’s impressive growth. In the third quarter, Snapchat’s daily active users grew 23% year-over-year to 306 million, while quarterly revenue shot up 57%. That, and the company is getting leaner and more efficient: net loss improved 64% and adjusted EBITDA improved 209% year-over-year.
And these growth numbers are no aberration. In the second quarter, Snapchat’s daily active users had increased 23%, its revenue soared 116%, its net loss dropped 53%, and EBITDA improved 223%. Such back-to-back quarterly growth numbers hardly reflect a business in dire straits.
Second, Snapchat continues to cement its popularity with Gen-Z consumers, withstanding pressure from Facebook-owned Instagram and video app TikTok. A Pew survey from April found that about 65% of 18- to 29-year-olds use Snapchat, while only 48% use TikTok. Snapchat still trails Instagram (71%), but its enduring popularity shows that Snapchat has proven its naysayers wrong. Snapchat has proven its ability to thrive as a standalone business in today’s social media ecosystem, where young consumers refuse to spend their time on just one or two applications.
Third (and perhaps most important from a long-term investor perspective), Snapchat is better positioned than Facebook to withstand antitrust action or federal legislation directed at social media and technology firms. Facebook has been in the political crosshairs since 2016, but that pressure has now reached a boiling point as leaked company documents make headlines every other day. Amid the fury towards Facebook and broader backlash to big tech (targeting firms like Amazon, Google, and Twitter) Snapchat remains relatively unscathed.
None of this is to say that Snapchat investors should dismiss Apple’s new data-sharing policies. But at the same time, they shouldn’t lose sight of the social media industry and its trajectory, which seems to favor Snapchat over its biggest competitor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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John Hyatt
John Hyatt is a freelance journalist covering financial services, market structure, stocks and IPOs, and private equity. Prior to entering journalism, John worked in public relations for clients in financial services, investment management, fintech and cryptocurrency. John is currently receiving his M.A. in business and economic reporting from NYU as a Marjorie Deane fellow.
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