Snap is being outperformed by Meta in digital advertising.

• Meta is outperforming Snap in the ad business, as evidenced by Snap's fourth-quarter earnings.
• Insider Intelligence's principal analyst, Jasmine Enberg, stated that larger corporations are growing at a faster rate while smaller companies are taking longer to recover.
• On Tuesday, Snap's extended trading saw a 33% decline, setting the stage for one of its worst days in stock market history.

The online ad market is recovering, but the gains are not uniformly distributed.

Wall Street estimates were blown away by the company last week in its fourth-quarter earnings report, pushing the stock to a record high. However, a smaller rival fell short on Tuesday, causing investors to rush for the exits.

Meta's ad business, comprising Facebook and Instagram, experienced a 24% increase from the previous year, marking its fastest growth rate since mid-2021. In contrast, Snap reported a 5% year-over-year increase, which represents its sixth consecutive quarter of single-digit growth or a decline in sales. This growth rate is slower than that of both Meta and Snap.

Since its debut seven years ago, Snap has experienced one of its worst days on the market, with its stock dropping 33% in extended trading to $11.75. The two biggest one-day declines were a 43% drop in May 2022 and a 39% plunge two months later.

On Friday, Meta's stock price increased by 20% after the company reported a significant increase in profit, exceeded expectations on both the top and bottom lines, issued an optimistic outlook, and announced its first dividend payment.

Insider Intelligence's principal analyst, Jasmine Enberg, stated that larger corporations are expanding while smaller businesses are recovering at a slower pace. She included Snap in the group of slower-rebounding companies.

Snap's revenue projection for the first quarter is between $1.095 billion and $1.135 billion, which represents growth of approximately 11% to 15%. The midpoint of the range, $1.115 billion, is slightly below the analysts' average estimate of $1.117 billion.

The digital ad market is recovering from a challenging 2022, when high inflation and increasing interest rates caused brands to cut back on spending. However, with a more stable economy and upcoming events such as the 2024 Olympics in Paris and the presidential election later this year, ad platforms are experiencing improvements.

Meta and other tech giants, including Alphabet and Amazon, have experienced uneven rebound growth in advertising, with double-digit increases reported for the fourth quarter.

During Snap's earnings call on Tuesday, CEO Evan Spiegel was queried by analysts regarding the reasons behind the company's slower performance compared to its competitors.

Rich Greenfield of LightShed Partners questioned whether Snap's smaller size compared to Meta is a long-term issue. Spiegel replied by stating that Snap is one of the largest internet services and there is significant potential for growth.

Ross Sandler, a Barclays analyst, questioned Spiegel about the lack of progress and slow growth rate in comparison to the broader digital ad industry.

‘Wish we were moving faster’

Spiegel began his response by expressing his enthusiasm about the advancements in the lower funnel business of its online advertising platform.

However, he acknowledged some level of disappointment.

Spiegel stated, "Although we wish we were moving faster, we're working as hard as possible and are pleased with the progress we're seeing in the direct-response business."

In 2022, Meta and Snap experienced significant challenges due to a weakened ad market and the iOS privacy update, which made it more difficult for social media companies to target users. In response, both companies announced that they were investing heavily in artificial intelligence to improve their ad technology.

Chinese retailers are boosting Meta's profits by spending more money to reach its 2.11 billion daily active users on Facebook, compared to Snap's 414 million users.

Snap is heavily investing in machine learning and AI technologies to improve its online ad platform, as previously stated by Spiegel.

According to Enberg's statement to CNBC, Meta is more advanced in its development due to the feedback she has received from advertisers, and its size provides an inherent advantage.

Meta's platforms are more extensive than Snapchat, giving them access to more data and users as they reconstruct it. According to Enberg, Snap has made significant advancements, as evidenced by its earnings reports this quarter and the previous one. However, it appears that the company is taking longer to achieve its goals.

Snap has recently positioned itself as a messaging company rather than a social media platform, as it tries to distance itself from the broader social media universe, Enberg said. The company has disclosed sales in its Snapchat+ subscription service for the first time and has an annualized revenue run rate of $249 million in 2023. The service now has 7 million subscribers, up from 5 million in the previous quarter. Snap debuted the product in 2022 for $3.99 a month.

Currently, revenue from subscriptions is minimal, and advertising remains the primary focus, as Enberg stated, "the reality is that it's competing for the same social dollars."

Her concern was the decreasing confidence level of investors in Snap in the future, she stated.

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