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Snap Plummets as Apple Changes, Supply Chain Weigh on Ads

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(Bloomberg) -- Snap Inc. shares tumbled as much as 27% after the owner of the Snapchat app warned that changes to Apple Inc.’s data collection rules and global supply chain issues are weighing on advertising spending, tempering its earnings forecast for the fourth quarter.

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The company said it expects revenue of as much as $1.21 billion in the final three months of the year, less than the $1.35 billion analysts were projecting. Adjusted earnings before interest, tax, depreciation and amortization will be $135 million to $175 million in the period, much lower than the $299.3 million forecast from Wall Street.

“As we look to the fourth quarter, we face a variety of challenges in the operating environment,” Chief Executive Officer Evan Spiegel said on a call with analysts to discuss the results.

Earlier this year, Apple started requiring all apps on its iOS 15 platform to get iPhone users’ permission to be tracked for advertising purposes. Device holders have opted to give apps the ability to monitor their behavior just 25% of the time, according to an earlier estimate from Branch, which analyzes mobile app growth.

Snap executives have said its users were opting into tracking more often than some of the industry’s reported averages, but they won’t know the full effect of the change until later in the year. What’s clear is that the new rules have made it difficult for advertisers to measure and manage their ad campaigns, Spiegel said, and that will continue to impact the business through the end of the year.

At the same time, Snap said its advertising partners across a variety of industries are facing supply chain disruptions and labor shortages. This is occurring at a time when these partners would normally be operating at peak capacity, generating the strongest and most valuable quarter for ad revenue. But marketers can’t advertise for products they can’t sell.

“While it is difficult to predict the duration and magnitude of these macroeconomic factors on the businesses of our partners, we have assumed that these headwinds will persist throughout Q4,” said Chief Financial Officer Derek Andersen.

Snap’s warning cast a shadow over larger ad-dependent rivals including Google, Facebook Inc. and Twitter Inc., whose shares also fell after the report. Snap tumbled to a low of $52.48 in extended trading.

Still, Snap has benefited from the continued migration toward online shopping and digital advertising during the pandemic. Companies of all sizes turned to social media platforms to reach customers who were stuck at home to avoid the spread of Covid-19. As the economy reopens, Snap executives have argued that they expect more users to turn to the app not just to passively ingest entertainment but also to connect with new friends and add updates about their life to their Snapchat Stories -- posts that disappear within 24 hours.

Apple’s changes already were impacting Snap’s business in June and July, Spiegel said. In the third-quarter, Snap reported sales increased 57% to $1.07 billion. That compared with the $1.1 billion average projection of analysts. The ephemeral photo-sharing app Snapchat reported 306 million daily active users in the period, beating predictions of 302 million.

The Santa Monica, California-based company reported a third-quarter net loss of $72 million, compared to the $145.26 million loss analysts expected. The company projects that daily active users will climb to between 316 million and 318 million in the fourth quarter.Snap has said it expects to deliver revenue growth of more than 50% for several years, in part on the strength of aggressive investment in augmented reality. The company has pushed brands to experiment with customizable advertising and shopping experiences that allow customers to try on clothes, accessories or beauty products on their phones. The app has also added features to its Snap Map such as local restaurant recommendations or information about upcoming concerts and shows in the area.In recent months, Snap has sought to expand the reach of its augmented reality technology with new partnerships. On Tuesday, Snap announced an integration with Google’s new Pixel 6 phone, which will enable users to tap the back of the device twice to open the app’s camera directly from the lock screen.It’s also teamed up with dating app Bumble to let users send their matches video notes with Snapchat augmented-reality products, and joined forces with Walt Disney Co. to allow tourists at Walt Disney World to incorporate Snap AR experiences into their visit and photos.

(Updates with earnings forecast in second paragraph.)

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