Shares of Meta were down around 7% from the start of this week as of Friday morning. Snap shares fell more than 25% after it reported earnings last week.
“Today’s results are very much reflecting the impact of a challenging economic environment which is hurting almost every mega tech company,” Haris Anwar, a senior analyst at Investing.com, said in a statement.
It’s a stark reversal for the online advertising industry. After a brief dip at the start of the pandemic, advertisers began funneling money into online ads to reach consumers who were spending more time plugged into screens. This time last year, Meta and Snap both reported that quarterly sales had doubled from the prior year, and Google’s grew by 62%.
More recently, a surge inflation, a market downturn and fears of a recession have prompted companies to pull back on their ad budgets, tech giants said during their earnings reports this week. Many companies, including in the tech industry, have recently slowed hiring and investments amid the economic uncertainty.
The very nature of how some online ad campaigns are run has made the pain immediate. Snap CFO Derek Anderson noted in the company’s earnings call last week that “advertising spending — in particular auction-driven direct response advertising — is among the very few line items in a company’s cost structure that they can reduce immediately in response to pressure” on other parts of their business.
Those macroeconomic challenges are expected to drag into the rest of this year. Meta said Wednesday it expects revenue for the current quarter to be between $26 billion and $28.5 billion, which would mark a second year-over-year quarterly revenue decline. Although Snap declined to provide financial guidance because of the uncertain environment, it said third quarter revenue was so far flat compared to the previous year.
And while Google has the benefit of its own third-party data, YouTube’s ad business hasn’t been entirely spared.
“Right now is essentially a perfect storm for digital advertising,” D.A. Davidson analyst Tom Forte said. For companies reliant on advertising, “there’s a high risk to your revenue.”
–CNN’s Rishi Iyengar contributed to this report.
