November 27, 2020

Snap results signal an online advertising ‘bonanza’ for tech companies


Snap Inc. chief strategy officer, Imran Khan, takes a photograph on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO in New York, U.S., March 2, 2017.

Brendan McDermid | Reuters

Shares of tech companies in the advertising space rose Wednesday after Snap’s third-quarter results signaled strength in the ad market after a difficult year because of the coronavirus pandemic. 

Shares of Snap surged more than 26% Wednesday morning as investors continued to rally around the company’s unexpected third-quarter earnings beat and strong advertising momentum. Shares in tech companies Pinterest, Facebook, Google-parent Alphabet and Twitter were also up. 

Deutsche Bank analysts wrote in a Tuesday note Snap’s results implied a “bonanza for online advertising.” 

Snap Chief Business Officer Jeremi Gorman said Tuesday the company saw positive momentum in the ad market, including in brand advertising, which was weak during the early days of the coronavirus pandemic. Snap’s ad revenue growth was 52% year-over-year. 

“We saw the beginnings of a recovery from brand advertisers, and continued resilience from direct response advertisers, reinforcing our confidence in the long-term positioning of our business,” Gorman said on the company’s earnings call. 

Deutsche Bank analysts said the results bode well for companies in the online ad space, and especially for Twitter, because of Snap’s comments on the acceleration of spend on the brand side.

Twitter’s business is especially driven by brand advertising and would see the benefit of a rebound in that spend. It’s viewed as a place for advertisers to appear alongside big events and sports, and less a place for direct-response advertising, in part because of technological issues it’s faced with the suite of products it uses for that capability. Twitter stock was up more than 6% Wednesday morning. 

Shares of Pinterest also jumped nearly 12% early Wednesday, after both Goldman Sachs and Bank of America upgraded shares of the company to buy from neutral due to Snap’s earnings beat. Both of the firms said it viewed Snap’s strong quarter as a good sign for Pinterest. 

Snap’s results signal how advertisers are behaving in their spending on platforms outside of the behemoths of Facebook and Google. 

“Our field checks, along with Snap’s 3Q results, suggest that advertiser demand strengthened over the course of the quarter, particularly for smaller platforms like Pinterest, Twitter, and Snap,” Goldman Sachs said in the note. 

Facebook shares were up nearly 4%, while Google’s were up nearly 2%.

–CNBC’s Michael Bloom contributed reporting.

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