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Snap’s Stock Plummets as It Blames Apple’s Privacy Changes for Hurting Its Ad Business


Snap Inc.


SNAP -0.71%

said Thursday it expects growth to slow in the current quarter because of recent changes to

Apple Inc.’s

App Store privacy rules, sending Snap’s stock tumbling more than 20% in after-hours trading and highlighting the impact of the iPhone maker’s new policy on digital advertising.

The social-media company said revenue rose 57% for the three months ended Sept. 30, slightly below analysts’ expectations and its own guidance, but it expects expansion to slow. Daily users rose 23% to 306 million.

Apple’s new rules have made it difficult for advertisers to test and measure their campaigns, according to Snap. Its share price fell to about $57 after closing at roughly $75. Other technology companies, including

Facebook Inc.,

Twitter Inc.

and

Alphabet Inc.,

also fell in after-hours trading.

“This shows the Achilles’ heel in Snap’s model,” said Truist Securities analyst

Youssef Squali.

“That is effectively a lack of massive first-party data, which is what you need to be successful in this business.”

Snap, based in Santa Monica, Calif., said Thursday that it projects revenue for the quarter ending Dec. 31 to range between $1.17 billion and $1.21 billion, which would be up from $911 million a year earlier but below the $1.36 billion that analysts polled by FactSet were expecting.

“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 ad partners to measure and manage their ad campaigns for iOS,” Snap said.

Apple’s new policy has roiled the digital-advertising business since it was announced last year. The policy, implemented in April, requires apps to ask users whether they want to be tracked, which has made it harder for advertisers to target their ads at the right audience and get information regarding how well their ads performed.

U.S. users opt into tracking only about 16% of the times they encounter the Apple privacy prompt, according to mobile-app-analytics provider Flurry.

The move has prompted complaints from companies that use such tracking technology to sell ads, and led to a running, public fight between Facebook and the iPhone maker. Facebook said last month that the changes were impeding tools that the social-media company uses to help advertisers measure the effectiveness of their campaigns.

Shares in other social-media companies fell after Snap’s report Thursday. Facebook’s stock price was down more than 4% in after-hours trading, and Twitter’s were down more than 3%.

“Investors have been underestimating what the impact of Apple’s rule change would be for digital advertisers,” said Wedbush Securities analyst

Ygal Arounian.

“That’s something that’s likely to get worse before it gets better.”

To cope with the problem, Snap said it is developing additional first-party tools to help its ad partners achieve their goals. But the company also attributed its holiday-quarter outlook to another complication—supply-chain and labor-market shortages—saying those are indirectly crimping its ad business by hurting business for its ad partners.

“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,” Snap said.

The twin challenges caught investors by surprise, according to Wedbush’s Mr. Arounian. Snap’s advertising partners “are not in need of driving incremental demand right now and are pulling back on their ad budgets,” he said.

Snap, whose Snapchat app is popular with teens and young adults, has stood out from its larger peers throughout the pandemic by posting steady revenue and user growth. The company’s share price more than doubled in the 12 months through Thursday’s close, before falling sharply in after-hours trading amid its quarterly report.

“While it is difficult to predict the trajectory of these challenges, the growth of our audience, the adoption of our new products and platforms by our community, and the underlying efficacy of our advertising products for performance advertisers gives us confidence in the future of our business and our ability to navigate this environment as we continue to invest in our long-term vision,” Snap Chief Executive

Evan Spiegel

said on an earnings call with analysts.

For the latest quarter, Snap said its revenue totaled $1.1 billion.

The company also said it narrowed its loss to $72 million from $200 million a year earlier. Analysts were expecting a loss of $156 million.

The company has sought to broaden its business beyond advertising. A new feature called My Places offers users personalized recommendations of places to eat and visit based on friends’ interests. Spotlight, a video-sharing tool the company introduced last year, tries to appeal to content creators.

Snap said this week that users with Pixel 6 phones from Alphabet’s Google will be able to access Snapchat from their lock screens. That means they can more quickly open the app by double-tapping their devices. Snap also said it is working with Google to build unique augmented-reality experiences.

The latest update to the iPhone’s operating system features a new privacy feature called App Tracking Transparency. WSJ’s Joanna Stern spoke exclusively with Apple’s Craig Federighi about the decisions behind the feature, as well as Apple’s interest in mixed reality—and the possibility he will succeed Tim Cook as CEO. Photo illustration: Alex Kuzoian for The Wall Street Journal

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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