Why Did Snap Stock Plummet 10% Yesterday?

Snap Inc saw its price sink further following prolonged challenges surrounding advertising revenue, and it might not be finished falling yet

Jan. 14, 2022

Snap Inc (NYSE: SNAP) dropped more than 10% yesterday in a concerning development for shareholders. The social media company now sits at its lowest price in over a year after suffering from a significant continued slide since it lost over a quarter of its value in one day following an exceptionally bleak earnings report in late October.

Why did Snap drop so suddenly?

The main reason behind Snap’s sudden drop yesterday seems to lie in a downgrade of the stock from investment bank Cowen. The firm slashed its price target for Snap by 40%. This downgrade occurred due to the lingering effects of Apple’s notorious iOS version 14.5. The operating system update flipped the advertising world on its head by giving users more control over their privacy.

In a survey of a number of U.S. ad buyers, Cowen found notable declines in return on investment along with increased difficulty in retargeting consumers. Buyers have struggled to find alternative methods to offset this huge decrease in the effectiveness of paid ads and this turmoil is expected to continue for the foreseeable future.

Snap is not alone in feeling the pinch from these changes, with companies such as Etsy and Pinterest also losing ground too. All of these businesses rely heavily on advertising for their revenue so Apple’s changes have caused widespread stock downturns since their implementation.

Is Snap still a good investment?

Snap, despite all its many good qualities, appears to be quite a risky investment proposition right now. The headwinds it faces as a result of Apple’s iOS changes don’t seem to be going away anytime soon. The challenges brought about as a result could last for the next 12 months as companies continue to seek alternative places to relocate their ad spending.

Snap is also in danger of losing further ground to rival TikTok. Heavy investment in short-form video platform Spotlight failed to make much of an impact on TikTok’s market share, with many top creators leaving Snap’s offering once monetary rewards got reduced.

Snap does maintain a strong position in the lucrative 13 to 24-year-old demographic and offers something different in comparison to most social media platforms by focusing on messaging as opposed to being just another media feed. However, the challenges faced by the company just seem too great to look past right now. Investors should certainly keep an eye on the firm to see how it responds, but for now, your money might be better placed elsewhere.