The Everything Shortage worms into social media and internet advertising. Facebook and Google better walk that back pronto.
By Wolf Richter for WOLF STREET.
Snap, which owns the Snapchat app, disclosed this evening two tidbits that turned into bombshells that blew up its own shares, which plunged 25% in after-hours trading, along with the shares of social media giants that make money from advertising, in one fell swoop:
- Facebook: -6%
- Twitter: -6%
- Pinterest: -3%
- even Alphabet: -2.5%
- Intel: -9% … OK wait, that’s a separate issue.
Snap said in its earnings release – “earnings” being a misnomer because it lost $72 million in the quarter to add to its losses stretching back for 10 years – that there were two “significant headwinds”:
One, the privacy settings and consumer-tracking changes Apple had announced in February for its iOS platform to give consumers some protection from tracking “impact the way advertising is targeted, measured, and optimized,” Snap said.
And two, the Everything Shortage. The “global supply chain issues and labor shortages” impact Snap’s advertisers that then would advertise less because they’re low or out of merchandise to sell, and there’s less reason to advertise, right before the holiday selling season.
“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” CEO Evan Spiegel said at the earnings call.
Snap is impacted through its apps when they run on consumers’ Apple devices.
Those privacy settings that Apple had implemented were expected to cause some pain in the advertising business that lives off consumer tracking and analysis. But Spiegel said that the hit to Snap’s advertising business was more than expected.
This is an issue, according to the gut-or-algo reaction tonight, that, if it hits Snap, it’s going to hit the advertising business of other social media companies – hence the share-price plunges in sympathy.
Concerning the Everything Shortage and its connection to advertising revenues by social media companies, Spiegel said that global supply chain interruptions and labor shortages would reduce the “short-term appetite to generate additional customer demand through advertising.” And so less money from advertisers for social media companies.
And, anathema for the markets, “it is difficult to predict the trajectory of these challenges,” he said.
“Unfortunately, these changes are occurring during a season when our advertising partners would normally expect their supply chains to be operating at peak capacity, and at a time when we would otherwise expect peak advertising demand to drive peak contestation, and therefore peak pricing, in our auction,” CFO Derek Andersen said.
Given these headwinds – the revenue hit from Apple’s privacy settings and the revenue hit from the Everything Shortage, including the labor shortage – Snap lowered its Q4 revenue projections to a range between $1.16 billion and $1.20 billion, well below the average expectations by analysts of $1.36 billion.
Google and Facebook better walk this back pronto.
They have to paint this as a company-specific issue that only impacts Snap. Because all heck is going to break loose if it turns out that the Everything Shortage – which is a shortage of physical goods and labor – is starting to hit revenues of companies that have nothing to do with physical goods, but are making their money off the Internet by tracking consumers and showing them ads.
If Google and Facebook don’t walk this back, it would mean that the Everything Shortage is now winding its way into the corporate money machine in insidious ways.
While at it, Intel shares plunged nearly 9% afterhours.
Intel reported earnings, which missed. It lowered its projections, with revenues to decline by 3% year-over-year in Q4, gross margin to drop by 6.5 percentage points, and earnings per share to plunge by 40%. And then CEO Pat Gelsinger explained how much it would cost to make the company competitive again.
He’d returned to Intel in February to straighten out the company that over the past 10 years had focused on incinerating $84 billion in cash on share buybacks.
He put a stop to those share buybacks and is now trying to get the company back on track, after its technology and manufacturing were surpassed by others, including Taiwan Semiconductor Manufacturing. And now there’s a price to pay.
The price to pay — in addition to the costs and risks that occur when competition blows by you — now includes up to $28 billion in capital spending just for next year, Intel said. That’s a huge pile of money in one year, even for Intel, amounting to over one-third of its annual revenues, and it sure would be nice now to not have incinerated all this cash on share buybacks.
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