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Snap Stock Plunges, Social Media Stocks Slide, After Ad Spend Warning, Apple Privacy Changes

New privacy changes in Apple IOS, along with lower ad spending forecasts, have Snap shares more than 20% lower in pre-market trading.

Snap Inc.  (SNAP) - Get Snap, Inc. Class A Report plunged lower Friday after it forecast weaker-than-expected holiday sales and cautioned that supply chain disruptions would hit advertising spending in the social media sector over months ahead.

Snap, which makes the Snapchat messaging app, also said the new privacy changes in Apple's  (AAPL) - Get Apple Inc. (AAPL) Report operating system made it more difficult to track and target users with specific ads, "making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS."

The larger issue for Snap, however, was the warning on ad sales, with chief business officer Jeremi Gorman telling investors that "advertising partners across a wide variety of industries and geographies that they are facing headwinds in their business related to disruptions in global supply chains as well as labor shortages and increasing costs', and were reducing marketing spend as a result.

"In turn, we expect this to impact advertising demand in Q4, in particular, as in many cases their businesses do not have the inventory or operational capacity to support incremental demand," Gorman said on a conference call late Thursday. "We expect that some of these clients may opt to slow their marketing spend given the diminished need to drive incremental demand at a time when their supply chains are not able to operate at peak capacity."

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Snap said it sees holiday quarter sales growing between 28% and 32% -- well below the consensus forecast of 48% -- after posting softer-than-expected sales of $1.07 billion for the three months ending in September.

Snap shares were marked 19.6% lower in early trading Friday to change hands at $60.50 each.

Facebook  (FB) - Get Facebook, Inc. Class A Report tumbled in sympathy, falling 4.4% to $326.95 each while Twitter  (TWTR) - Get Twitter, Inc. Report shares were marked 2.65% lower at $63.15 each. Google parent Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report fell 1.75%.

"We under-appreciated the impact iOS changes had on Snap in 3Q, and that flows into much weaker than expected guidance," said KeyBanc Capital Markets analyst Justin Patterson, who carries an 'overweight' rating with an $85 price target on the stock.  

"The brand spend assumption appears conservative (management attributed the weakness to the intersection of iOS changes, supply chain headwinds, and labor shortages causing advertisers to adjust spend) and we believe any strength exiting 4Q should increase confidence 2022E growth is closer to 50% than 40% y/y," he added.