The Ratings Game: Why Snap may feel the sting of Apple privacy changes more than Facebook and Google

Just how much do Snap Inc.’s issues translate to the rest of the internet’s major ad companies?

That was a hot topic among investment analysts Friday as Snap shares

careened toward their worst single-day percentage decline on record, and other large online-ad companies fell with it. Snap fell short on revenue in its Thursday earnings report and also issued a disappointing outlook, warning of challenges brought on by privacy-related changes on Apple Inc.

devices as well as supply-chain disruptions that are impacting companies’ willingness to advertise products that consumers may not be able to obtain right away.

Opinion: Snap points to possibility of Apple causing the long-feared ‘ad-mageddon’

Snap shares were off more than 25% in Friday morning trading, and the other decliners included Facebook Inc.’s

stock down 5.8%, Twitter Inc.’s

down 4.5%, Pinterest Inc.’s

off 4.0%, and Alphabet Inc.’s


off 3.4%.

In recent months, internet companies had been expressing varying degrees of jitters about Apple’s privacy changes, which offer users more control over how their information can be used for ad targeting. On Snap’s prior earnings call, executives highlighted how users had been opting into allowing ad-related tracking at seemingly higher rates than had been reported elsewhere in the industry, which seemed an upbeat signal of Snap’s ability to weather the challenges. Facebook, on the other hand, struck a more cautious tone.

Now Snap looks to be in a worse position than several of its peers when facing the privacy challenges, according to Morgan Stanley’s analysis. The company is heavily exposed to direct-response advertising, which is heavily impacted by the Apple changes, and it will likely take “months or quarters” before Snap can fully roll out tools that help marketers better track the effectiveness of their campaigns in this new environment, Morgan Stanley’s Brian Nowak wrote.

Of the eight factors that Nowak initially thought could help Snap withstand the Apple impacts, six “have proven to be less effective than hoped,” he wrote. Several other big internet companies look to be in a better spot, in his view, including Google, which is less exposed to Apple’s tracking issues and also has a large advertiser base that could hold up more strongly given the macroeconomic effects of supply crunches.

Nowak had previously identified nine factors that could help Facebook offset the Apple pressures, and heading into that company’s earnings report next week, he still thinks at least five are “fully intact.”

He has an overweight rating on Snap’s stock but said that his model is “under review.” The company faces an “unfavorable operating environment” that “calls into question the achievability of [its] 50%+ multiyear revenue growth outlook.”

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Monness, Crespi, Hardt & Co. analyst Brian White also suggested that Snap could see greater impacts than some rivals.

“Given Snap’s size, maturity, and ad technology stack relative to the much larger, more experienced, industry leaders, we believe the company is more susceptible to these challenges,” he wrote of the privacy issues and supply-chain disruptions. “That said, we doubt any company tied to digital ad spending will be immune to these issues, including Facebook, Alphabet, and others.”

He has a neutral rating on the stock.

MoffettNathanson’s Michael Nathanson expressed some concerns about Snap’s ability to deliver adequate measurement tools to advertisers amid the changing landscape, especially relative to the competition.

“Given the amount of resources Google and Facebook have invested in developing aggregated measurement approaches to prepare for privacy changes, we believe it will take some time for Snap to develop an effective measurement tool as well,” he wrote.

From Barron’s: Google Charges Higher Fees for Ads, Lawsuit Says. That’s Not Why Alphabet’s Stock Is Dropping.

He noted that, “encouragingly,” Snap’s management team sounded upbeat about advertising effectiveness and mainly pointed to problems related to measurement. “However, this is certainly an important issue, especially for the long tail of [small- and medium-sized businesses] that need measurable [returns on investment] to justify ad spending.”

He kept his buy rating on Snap’s stock but lowered his price target to $71 from $87.

Bernstein’s Mark Shmulik wrote that Snap “gets to be the bellwether of digital ads” since the Apple-related measurement issues and supply shortages are likely to apply to the whole sector.

“Expect IDFA- related issues to cause havoc across retail and app-related iOS advertisers,” he wrote. “Our read-through points to Google and Twitter as safe places for investors to ride out near-term headwinds.”

He has an outperform rating on Snap’s stock but lowered his price target to $80 from $85.

Even with Friday’s sharp decline, Snap shares are up 12.4% so far this year, compared with a 20.7% rise for the S&P 500

in that span.

This post was originally published on Market Watch

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