Buy ads or bust

If Snap’s earnings are any indication of how social media companies are faring right now, the answer is: Not well, not well at all. 

What happened: The Snapchat parent company (-X%) kicked off social media earnings by reporting its slowest quarterly sales growth ever, thanks to a steep drop in advertising dollars. 

  • Apple’s privacy changes to iOS (which made it harder to target ads and measure campaign success) and the popularity of rival app TikTok were also a drag on growth.
     
  • Investor fears snowballed to affect Meta (-X%), Alphabet (-X%), and Pinterest (-X%). Twitter’s share price also fell, but we can partly blame Elon Musk for that.

If you think you’ve read this all before, you’re right. The takeaways from Snap’s last earnings report were similar: Not-enough advertising dollars is a problem that just isn’t going away. 

  • Digital ad companies have collectively lost roughly US$1 trillion in value this year. You don’t need to be Warren Buffett to know that’s a bad sign.

Yes, but: Hope springs eternal. BeReal, the no-frills social app that’s taken off with Gen Z, recently secured US$60 million at a US$587 million valuation, sources told TechCrunch.

  • This is despite the fact the app currently has no ads, generates no money, and has no natural path to profitability except maybe a potential subscription service

Bottom line: As advertising as a core money-maker falters as a reliable way to grow revenue, the social media industry is facing an existential crisis—with companies copying each others’ features at every turn to captivate wandering advertising targets audiences. 

Maybe BeReal has got it right: Instead of trying to wring out a dry sponge, maybe, just maybe, social media companies should focus on creating value and put profits to the side.