Last week, roughly one-quarter of Snap’s market capitalization evaporated after the company reported weaker-than-expected revenue for Q3 and offered soft guidance for Q4. Shares of Twitter and Facebook were also down after Snap’s earnings announcement.
Our advertising business was disrupted by changes to iOS and tracking that were broadly rolled out by Apple in June and July. 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….This impact was compounded by the ongoing macroeconomic effects of the global pandemic with our advertising partners facing a variety of supply chain interruptions and labor shortages. This in turn reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply constrained. The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable and in the meantime, we are focused on supporting our partners in this uncertain environment.
Jeremi Gorman, Snap’s Chief Business Officer, offered more detail about how ATT impaired the company’s advertising platform performance in the quarter:
Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA, Apple’s unique device identifier for advertising over the past decade, which now require a double opt-in by users in order to access directly. As part of these changes, Apple rolled out SKAdNetwork or SKAN as a proprietary solution to allow app-based advertisers to continue measuring their advertising on iOS. The initial results we observed using SKAN were generally aligned with prior industry standard solutions and we were among the first platforms to lean into this solution and push for widespread industry adoption. However, over time, we saw SKAN measurement results diverge meaningfully from the results we observed on other first and third party measurement solutions, making SKAN unreliable at a stand-alone measurement solution.
We have already seen an aberration in seasonal ad spend behavior over the course of 2020, where Q2 2021 digital ad spend was up relative to Q4 2020. That is unusual — it may portend a weak Q4.
Yes, some of this anomalous behavior can be attributed to a surge in e-commerce spending catalyzed by the COVID pandemic. But certainly some of the deviation from the normal peak-and-trough cycle owes to ATT and its impending rollout in Q3 (it’s important to keep in mind that, although ATT was introduced in iOS 14.5, which was launched in April, it didn’t reach a majority of users until June for reasons that I unpack here). Retailers may determine that it makes little sense to advertise products to consumers that can’t be purchased in Q4 of this year. And brands might calculate that flushing budget at year-end is egregiously wasteful in an environment where brand recognition is mostly a futile exercise.
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