Why Meta’s Ad Business is Thriving While Snap Struggles: A Deep Dive into the Uneven Online Ad Market Recovery

Online Ad Market Shows Uneven Recovery, Favoring Meta Over Snap

The online ad market is bouncing back. However, the recovery is not being evenly shared between companies. Last week, Meta surpassed Wall Street’s expectations with its strong fourth-quarter earnings report, leading to a record high in its stock price. On the other hand, Snap fell short of expectations, causing investors to sell off the stock.

Different Growth Rates in Ad Business

Meta’s ad business, including Facebook and Instagram, experienced an impressive 24% year-over-year growth, marking its fastest rate of expansion since mid-2021. In contrast, Snap reported only a 5% increase, making it the sixth consecutive quarter of low single-digit growth or a decline in sales. Snap’s advertising growth is slower compared to that of Google, Amazon, Microsoft, and Meta.

Market Reaction: Snap’s Declining Stock

Snap’s stock dropped by 33% in extended trading to $11.75, making it one of the worst days for the company since its debut seven years ago. The stock’s two largest one-day declines were a 43% drop in May 2022 and a 39% plunge two months later. In contrast, Meta’s stock soared 20% after reporting a tripling in profit and issuing an optimistic forecast, leading to the company’s first-ever dividend payment.

Industry Outlook and Snap’s Growth Challenges

Uneven Recovery and the Dominance of Big Tech Companies

The digital ad market is recovering from a challenging year in 2022, marked by rising inflation and interest rates that led brands to reduce their spending. However, the recovery has not been uniform across all companies. Meta, Alphabet, and Amazon, among others, experienced double-digit growth in advertising for the fourth quarter. Snap, on the other hand, faced questions from analysts about its slower growth compared to competitors.

Snap’s Efforts to Catch Up

During Snap’s earnings call, CEO Evan Spiegel addressed concerns about the company’s growth rate and smaller size compared to Meta. Spiegel highlighted Snap’s strong position in the internet services landscape and expressed optimism about the potential for further business growth. The company is investing heavily in machine learning and AI technologies to enhance its online ad platform.

Challenges and Strategies for Snap

The ad market challenges in 2022, along with Apple’s iOS privacy update, impacted both Meta and Snap. However, Meta’s larger platforms and user base provide an advantage in rebuilding its ad technology. Snap is making progress in upgrading its capabilities and pouring resources into artificial intelligence, but it is taking longer for the company to catch up.

Subscriptions and Advertising Revenue

Snap has recently positioned itself as more of a messaging company and has introduced its Snapchat+ subscription service. While revenue from subscriptions is currently minimal, advertising remains the primary revenue stream. Snap’s competition for social media dollars raises concerns among investors about its future growth and confidence level.

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