Snap just faced a sharp fall in its stock price down over 15% on Wednesday after the company chose not to share its forecast for the next quarter. The reason? A shaky global economy and rising doubts around advertising revenues.

In a statement, Snap explained,

“While our topline revenue has continued to grow, we have experienced headwinds to start the current quarter, and we believe it is prudent to continue to balance our level of investment with realized revenue growth.”

Snap’s biggest source of income is advertising. But lately, that area has started to show signs of stress. The company’s finance chief, Derek Andersen, mentioned that some advertisers are already feeling the effects of changes to the de minimis exemption , a rule that currently lets products under $800 enter the U.S. without paying duty. This rule ends on Friday, which could raise costs for many brands and make them rethink their ad spending.

Adding to the pressure, former President Donald Trump’s shifting tariff plans have made the business environment even more unpredictable this earnings season. With worries about a slowing economy, many companies are becoming cautious about marketing budgets and that hits Snap directly.

Despite the drop, some positives remain:

  • Ad revenue rose 9% year over year, hitting $1.21 billion for the quarter.
  • Total revenue jumped 14%, up from $1.19 billion to $1.36 billion.
  • The company’s net loss shrank 54%, from $305 million (19 cents per share) to $140 million (8 cents per share). This included a $70.1 million charge tied to severance, stock-based compensation, and restructuring in 2024.

User Growth Still Strong

Snap also showed strength in growing its audience:

  • Daily Active Users (DAUs) climbed to 460 million, up from 453 million last quarter.
  • Monthly Active Users (MAUs) hit 900 million, a jump from 850 million in August.
  • In North America, DAUs dipped slightly from 100 million to 99 million, but Snap doesn’t expect further declines in the coming months.

What Wall Street Thinks

Many analysts believe the company’s decision to hold back on guidance, along with the tricky global economy, will likely keep pressure on the stock.

Bank of America’s Justin Post said,

“While [price-to-sales ratio] is nearing a historical bottom and could support stock, we reiterate our neutral rating as Snap has been pressured more than peers in prior macro downturns.”

It’s Not Just Snap

Snap’s troubles also affected other social media stocks:

  • Pinterest fell 4%
  • Reddit dropped 8%
  • Meta (Facebook’s parent company) lost more than 2%

Ad Market Trends Across the Industry

According to Insider Intelligence, global digital ad spending is expected to grow slower in 2024 compared to previous years from 10.5% growth in 2023 to just 6.5% in 2024. This slowdown is being felt across platforms, not just Snap.

 Key Risk: Apple’s ATT Impact

Snap was heavily impacted by Apple’s App Tracking Transparency (ATT) changes in iOS, which reduced the effectiveness of targeted ads. While this isn’t new, it still affects performance compared to companies better equipped to adapt.