Snap sinks as ad glitch, fierce competition stall growth

(Reuters) -Snap shares plummeted nearly 17% in premarket trading on Wednesday as a weak quarter and mounting competition underscored the company’s struggle to keep pace with AI-driven peers.

Advertisers have been curtailing marketing budgets amid economic uncertainty and leaning toward bigger platforms like TikTok and Meta’s Facebook and Instagram.

That, and a glitch in Snap’s ad-buying platform that resulted in ads being delivered at discounted rates contributed to quarterly revenue growth slowing down to 8.7% from a year ago. Although it aligned with estimates, it is a far cry from the brisk double-digit growth the Santa Monica, California-based company logged over the past five quarters.

MoffettNathanson analysts said advertisers favor platforms that sit closer to users inclined to buy their product, offer strategies to different marketing tools, and can demonstrate clear return on ad spend.

“Snap still lags on all three fronts,” they said. “Until those factors change, we think the company remains stuck in monetization purgatory.”

The Snapchat-parent is now in a tough spot, especially as rivals Meta and Reddit reported strong second-quarter results last week.Snap is down around 12% this year, trailing rivals Meta that is up 30.3% and Reddit that is up 21.8%, as their AI-driven businesses are making big leaps.

The company said a broader rollout of Sponsored Snaps — a new video ad format that appears in user inboxes — in June across the U.S. and several global regions, is driving increased user actions and deeper engagement with ad content.”For Snap to take advantage of its improvements in engagement it must better prove out the efficacy of its ads to advertisers and lower barriers to advertiser adoption of its products”, Morgan Stanley analysts said.

(Reporting by Joel Jose in Bengaluru; Editing by Harikrishnan Nair)