Snap's stock price plummeted 43%! It sounded the alarm for the US social media industry

Snapchat warned investors recently that it would not meet its revenue forecast for the current quarter. The news sent Snap's stock price tumbling 43% and raised concerns about the overall state of digital advertising in the United States.

The issues mentioned in Snap's warning, including inflation, the war in Ukraine, supply chain shortages and rising interest rates, apply not only to Snap but to the entire U.S. social media and digital advertising industry, which is still mired in Apple's digital privacy disclosures.

However, digital ad revenues are generally on the rise, with revenues surging 35% to $189 billion in the U.S. last year. eMarketer predicts U.S. spending will jump from $248.8 billion in 2022 to $284.1 billion in 2023, but uncertainty about economic conditions and fears of a recession could cause advertisers to pull back.

Snap's news dragged down other social stocks, with Meta, Pinterest, Twitter and others all falling on Tuesday. But social media wasn't the only industry affected by the news. Google and Roku were also dragged down along with several other advertising technology stocks, indicating that Snap's problems extend to all of the digital advertising industry.

Like other social media apps, Snapchat has bet on in-app shopping and social commerce, and augmented reality (AR) features have made Snap stand out in a crowded social media race. But this week's warning shows that Snap's unique advantages are not enough to help it avoid a decline in digital advertising revenue.

Data shows that more than 25% of Americans will use AR this year, and half of American adults are interested in AR or have shopped through AR. But despite the high penetration rate of AR, if consumers and advertisers spend conservatively, then this penetration rate is meaningless.

"The social media industry is experiencing headwinds that are hitting their advertising business, but Snap can't be the only social platform to lower its expectations in the second quarter," said Jasmine Enberg, principal analyst at Insider Intelligence.

More than anything, the plunge in Snapchat’s stock is a warning to the entire social media industry, whose reliance on advertising revenue and difficulty shifting toward subscription fees make them vulnerable to volatile economic conditions and changes in the industry as a whole.

Editor✎ Ashley/

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