Snap Inc. shares are down more than 25% following the company’s disappointing quarterly results and new changes to its advertising business. Following the announcement of new changes to its advertising business, shares of Snap Inc. have dropped more than 20%. The company’s stock price continues to trade well below its IPO price of $17.82, as investors continue to question the company’s long-term viability. These new changes to its advertising business, however, come as no surprise. Apple Inc. announced changes to its advertising business last month, with the Cupertino tech giant promising “even more personalized experiences for users.” While the specifics of this won’t be revealed until June, the changes signal that Apple intends to continue its competition with Google, Instagram, and Facebook for digital advertising revenue. In this blog post, we’ll take a look at how Apple’s changes to the IDFA might affect Snap Inc. and its shareholders.
What is the IDFA?
The first thing to understand about the new changes to the IDFA is that it’s not the same as the IDFA that was announced in March. The revised IDFA was designed to help advertisers connect with people who were already interested in their products, not to encourage new purchases within the Snapchat app. Apple’s announcement last month, however, indicated that the company plans to allow ads that encourage people to make purchases. This could mean increasing the ads’ frequency and targeting options, or it could mean increasing the ads’ cost per view.
Why is Apple Inc. Making These Changes?
Apple has been actively competing with Google, Instagram, and Facebook in the digital advertising market for several years. The company’s iPhone and iPad are the top two devices used for online video, and it’s the leading music and app store. Apple’s decision to revamp its IDFA comes after reports that Google has been siphoning away its ad revenue by showing ads on its own products. Google’s recent move to end support for almost all third-party ad extensions on Chrome and YouTube, for example, was designed to force publishers to pull their content from the Google platform. Apple’s intent to compete with Google for the digital advertising market could also stem from its mounting competition with Amazon.com Inc. for digital advertising revenue. Amazon.com Inc. is aggressively advertising its own services, including Amazon Prime Video, and offering advertisers attractive deals on the program.
Apple’s Impact on the Advertising Market
Apple’s decision to compete in the advertising market could have a dramatic impact on the digital advertising market. Like Google, Apple generates the vast majority of its revenue from advertising. Apple is estimated to hold $17.8 billion in revenue from digital advertising in 2018, a 14% increase from the $15.3 billion it collected in 2017. With many analysts expecting the digital advertising market to increase by as much as 50% over the next few years, Apple’s addition of advertising revenue could help reduce the company’s reliance on hardware sales. Apple’s ability to generate this additional revenue is partially dependent on how the IDFA change impacts its advertising partners.
How Does this Will Affect Snap Inc.?
How would the revised IDFA affect Snap Inc.? We’re not entirely sure, but we can make some educated guesses. The first thing we can expect is a significant increase in the number of ads that display on the Snapchat app. If Apple intends to allow ads that encourage people to make purchases, we could see the number of ads on Snapchat skyrocket. Snapchat users are drawn to the app for its “seventh-day” appeal. Consumers often turn to social media to share pictures, videos, and texts that they’ve saved as evidence in the search for a new job, home, or friend. For many, this seventh-day appeal to social media is the only thing that keeps them from turning to more traditional forms of media. If Snapchat is the only place these consumers can find the evidence they need to make a purchase, we could see Snap Inc.’s revenue skyrocket as more people are drawn to the app.
The Bottom Line
The revised IDFA appears set to increase the number of ads posted on Snapchat and lead to a decline in the company’s revenue. While the changes could also encourage publishers to place larger ad budgets on Snapchat, we could also see a decline in revenue as fewer people view ads.