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Snap Inc’s Stock Price Takes a Hit Amid Disruption in Digital Advertising Market

  • Recently, Snap Inc recorded its biggest intraday decline at $12.79 since it went public in March 2017.
  • The share prices of Alphabet and Meta followed suit, falling 5% and 7.6%, respectively. The technology-focused US stock market index, Nasdaq Composite, fell 2.3%.
  • According to GlobalData, the global digital advertising market grew 10% in 2021 in comparison to 13.2% in 2020.

On May 24, 2022, the share price of Snap Inc, an American online advertiser and social media company, fell more than 40% to $12.79, which is lower than its 2017 IPO price of $17. The company slashed its quarterly forecast and warned of a slowdown in future growth. According to Snap Chief Executive Evan Spiegel, “Like many companies, we continue to face rising inflation and interest rates, supply chain shortages and labor disruptions, platform policy changes, the impact of the war in Ukraine, and more.”

Following the decline in the share price of Snap Inc, stock prices of other social media and digital advertising companies that rely on digital advertising spending also fell. The share price of Alphabet dropped 5%, Meta slipped 7.6%, and Amazon was down 2.2%. The technology-focused US stock market index, Nasdaq Composite, fell 2.3%.

Market Overview

Even though the global digital advertising market is growing in terms of value, the growth rate has been continuously decreasing. According to GlobalData, the global digital advertising market grew 10% in 2021 in comparison to 13.2% in 2020. The US is the largest digital advertising market with a share of 32.8% in the global digital advertising market, followed by Asia-Pacific with a share of 26.6%.

The Google and Meta duopoly generates the majority of the global online advertising revenue. Google and Meta together account for more than 70% of the global digital advertising market. However, other large digital platforms such as Amazon and mobile applications such as Snapchat and Instagram are now capturing the market share.

Disruption in Digital Advertising Market

Snap and other companies saw a decrease in digital advertising sales after Apple made software modifications that required applications to ask users if they wanted to be tracked. The new Apple policy affected the ability of advertisers to target their advertisements at specific demographic groups, besides hampering their capacity to determine if ad campaigns were effective.

The US government proposed a bill in the digital advertising space – the Competition and Transparency in Digital Advertising Act. Under this Act, a company with more than $20 billion in annual digital advertising sales would be prohibited from operating a "digital advertising exchange." Because of this law, major companies such as Meta and Google could be forced to spin off substantial chunks of their online advertising business.

The European Union's institutions also reached a political agreement on the Digital Markets Act and Digital Services Act. These regulations will have a significant impact on the digital economy, notably in terms of how data is collected and processed for online advertising.

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