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Snap Warning Feeds Concerns Over Social Media Ad Splurge

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(Bloomberg) -- A warning from Snap Inc. is rattling technology investors who have got used to turbocharged growth in ad spending on social media.

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Executives from the maker of Snapchat said Thursday that supply-chain bottlenecks are prompting companies to hold back on online ad spend for the upcoming holiday season, meaning sales will rise by only around 30% in the fourth quarter compared to analyst estimates of nearly 50%.

The comments took the market by surprise and set the company’s stock on course for its biggest ever decline.

The announcement adds to growing concerns over whether the wall of money that’s been shifted from traditional marketing to social media in recent years is being well spent.

Social media will account for 39% of ad budgets next year, even though they will only represent 21% of daily media consumption, according to a study from industry researcher WARC on Thursday. The discrepancy adds up to a gap of $94 billion, it said.

It’s been getting harder to judge whether social media ad spend is really working because Apple Inc. and Alphabet Inc.’s Google are making it more difficult for advertisers to track consumers online.

That also poses a risk to the revenues of Facebook Inc. and Twitter Inc. Shares in both companies dropped after the Snap announcement, reflecting concerns that some marketing budgets will simply be redirected from social media.

Europe’s biggest ad agency networks WPP Plc and Publicis Groupe SA traded flat to slightly higher on Friday.

There’s little sign that the broader transfer of advertising dollars to platforms like Instagram and TikTok will end soon, or that the global crisis in supply chains is leading brands to rethink their ad strategies.

Clients in consumer goods, retail, automotive and electronics “continue to spend, continue to shift spend to digital and there have been no instances of any pullbacks,” said Martin Sorrell, chairman of S4 Capital Plc. “The comments around supply chain issues simply don’t reflect what we are seeing. In fact, we are experiencing the opposite.”

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