Snap’s woes with Apple privacy changes signal what investors should expect from Facebook and Twitter

Published Thu, Oct 21 20218:13 PM EDTUpdated Thu, Oct 21 20218:20 PM EDT

Snap on Thursday finally delivered on what several tech companies have long been warning: Apple's privacy changes to the iPhone operating system would disrupt online advertising. The social media company's stock plummeted more than 20% in after-hours trading after citing Apple's changes as the reason for missing its revenue expectations. "Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July," Snap CEO Evan Spiegel said in his prepared remarks. "While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS." Snap's Thursday results are a sign of what to expect this quarter from tech companies that have long been warning about the impact that Apple's iOS 14.5 changes would have on their advertising businesses. This includes Facebook and Twitter , both of which are set to report their third-quarter earnings next week. The iOS 14.5 privacy changes allow iPhone and iPad users to easily prevent companies like Snap and Facebook from tracking their activity on their devices. That's bad for companies that rely on online advertising because it makes it more difficult for them to prove the effectiveness of their advertising products to their advertising clients. Apple released iOS 14.5 in April, but the specific privacy changes that impact online advertising were slowly rolled out to all users over the following months. The impact of Apple's changes were not felt by these companies during the second quarter, but as Snap's Thursday results demonstrated, the effects of iOS 14.5 are now nearly in full effect. Facebook, in particular, could be poised for poor results when it report its third-quarter earnings on Monday. No company has been louder about the negative impact of Apple's privacy changes than Facebook. The social media giant has been ringing the alarms about iOS 14.5 as far back as July 2020 , when CFO Dave Wehner warned that Apple's changes could hurt Facebook's ability to target ads. In August 2020 , the company then acknowledged that Apple's changes could lead to a more than 50% drop in Audience Network, one of its advertising businesses. The company has been so concerned about iOS 14.5 that earlier this year it rolled out a campaign, arguing that Apple's changes would hurt the ability of small businesses to reach their customers. This is why Facebook told investors following its second-quarter results that it expected "year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth" in respect to guidance for the second half of 2021. Twitter is also at risk of a rough quarter for the same reasons. The company has been far less pessimistic about iOS 14.5 than Facebook. In fact, in March Twitter sounded outright excited -- the company said Apple's changes could actually present an opportunity for Twitter to compete more effectively against its peers. But at the end of the day, Twitter relies on advertising for more than 88% of its total revenue. And just this month , the company made the decision to sell off part of its advertising business, its MoPub mobile ad network to AppLovin , a game developer and ad-tech company, for $1.05 billion in cash. Twitter reports results after the bell Tuesday. Snap had also previously talked about Apple's privacy changes in a positive manner. CEO Evan Spiegel praised Apple's consumer-friendly changes on CNBC in February . He sounded far less joyful about those changes on Thursday. "This has definitely been a frustrating setback for us," Spiegel told analysts on Thursday. We'll soon see how frustrating the privacy changes have been for Facebook and Twitter.

Evan Spiegel, CEO and co-founder of Snap Inc.

Adam Galica | CNBC

Snap on Thursday finally delivered on what several tech companies have long been warning: Apple's privacy changes to the iPhone operating system would disrupt online advertising.