Snapchat?s slowing ad growth sent inflation fears through the tech sector and created worries for what is yet to come.

Snap Inc reported on revenue growth on Thursday in a usually busy earnings quarter, indicating warning signs that the war in Ukraine and rising inflation could affect other tech companies. All are dependent on advertising revenue.  The company’s shares fell 27% in after-hours trading.

Snapchat is the first of the major tech companies to release its earnings and the results cast a shadow for the likes of Meta (Facebook) and Alphabet (Google), who will report their earnings next week. Snap’s weak results follow a similar second quarter that was also disappointing, which reflected the weakening economy’s effect on the social media sector. Even before the latest earnings report, the stock was down 77% so far this year.

Yesterday’s results deprecated over $4 billion off Snap’s market capitalisation.

Other companies that sell digital advertising also saw their shares dip, with Alphabet down 2.7%, Meta down over 4% and Pinterest dropping nearly 8%. In total, the sell-off in Thursday’s trading session knocked over $40 billion in stock market value from online ad companies.   

Snap commented, “we expect that the operating environment will continue to be challenging in the months ahead”. It also said its internal estimates that revenue for Q4, which involves the holiday season when advertisers increase their activity, will be flat from the prior year. As it stands, the power to forecast upcoming quarters will continue as a great challenge, Snap added.

Revenue for Q3 ending on the 30^th of September, was $1.13 billion, a rise of 6% from the previous-year quarter. This number only slightly missed the expectations from market experts, which were set at $1.14.

Furthermore, in August the photo messaging app announced it would reduce the number of employees by 20% and stop projects such as gaming and a flying camera drone. All in order to lower the costs, and balance itself against the worsening economy. Snap will try to refocus on developing its user base, diversifying its revenue sources, and investing in augmented reality tech.    

Nevertheless, the daily active users on its app increased by 19% YoY to 363 million during the quarter and the company expects this number to grow to 375 million in the fourth quarter.

(Sources: investing.com, Reuters.com)