The social media app Snapchat and the war in Ukraine might seem far removed from one another, and yet Russia's military aggression has become one of the biggest threats to the platform. — dpa
Snapchat and the war in Ukraine might seem far removed from one another, and yet Russia’s military aggression has emerged as a major threat to the social media app’s revenue streams.
The economic impact of Russia’s invasion of Ukraine, notably on advertising budgets, is strongly being felt at Snapchat, according to the platform’s management.
Snapchat’s ad revenue was already undermined last year when Apple began letting users stop other companies collecting information about them to show them targeted ads.
Now, amid renewed economic turbulance following Russia’s invasion, the past quarter has presented the US company with greater challenges than anticipated, the head of parent company Snap, Evan Spiegel, admitted in April.
“We believe the impact of the war in Ukraine on input costs, marketing budgets and overall economic confidence has been significant,” chief financial officer Derek Andersen said as Russia’s war against Ukraine entered its third month.
Immediately after the Russian invasion on Feb 24, many advertisers stopped their ad campaigns, he said. Ten days later, most of them had returned – but the pace of growth had slowed year-on-year.
Among other things, advertisers were worried about geopolitical risks due to the war in Ukraine, Snap fears. Inflation fears were also a factor, the company says.
Snap’s problems raise the question of how its big competitor – Facebook’s Meta, which also lives off ad revenue, will fare during the conflict.
Both companies were already hit last year by Apple’s measures to better protect privacy on the iPhone. Many users made use of the option to prohibit apps from tracking their activities across different services and websites.
This privacy move upset well-established business models for online advertising by cutting off access to the information that allowed companies to profile users by interests, age, sex and location. At the same time, it helped Apple increase its reputation for protecting user privacy.
So far, Snap has been able to digest these changes more easily than Facebook parent company Meta, where competition from the video app TikTok has largely stalled growth in user numbers.
Snapchat has been forced to reinvent itself after initially carving out a young user base with a relatively unheard of feature allowing people to share pictures that disappeared on their own.
Given that self-destructing photos have been added to WhatsApp and other platforms, Snap is now working, among other things, to become the go-to platform for shopping and media content.
In particular, Snap is focusing on so-called augmented reality (AR), in other words adding digital content onto what the user can see through their smartphone’s camera.
Snapchat now lets users try out shoes or cosmetics virtually – and takes money from companies for doing so. On average, more than 250 million users access various AR applications every day, Spiegel said.
Snap posted a 38% increase in revenue to US$1.06bil (RM4.61bil) in the first quarter. The bottom line was a loss of US$359.6mil (RM1.56bil) after figures in the red of just under US$287mil (RM1.24bil) a year earlier.
According to Snap, this increase is due to a valuation loss of US$92mil (RM400.43mil) on an investment. Snap also spent US$5mil (RM21.76mil) to support employees affected by the war in Ukraine.
Looking forward, the insecurity of advertising revenue streams during the war has added to fears. So far in the current quarter, revenue is up 30% year-on-year, but Snap fears further cuts to advertising budgets and is only forecasting a 20 to 25% increase for the quarter.
The performance of the business is now harder to predict than at any time in recent memory, finance chief Andersen said. – dpa
