Pinterest (PINS -1.41%) shares have been nearly cut in half this year. Apple's privacy setting changes have negatively affected social media stocks, but additional issues cut much deeper. Here's why things could get even worse for Pinterest.

From bad to worse

Before changes made by Apple to its privacy settings, social media platforms like Pinterest could glean an astonishing amount of data from each user. The data could be used to pinpoint ad campaigns more accurately than traditional media platforms like TV and websites -- advertisers flocked to the new format. Since Apple's April 2021 privacy setting changes, social media platforms' ability to collect user information has been hamstrung.

It took time for Apple's privacy settings to hit Pinterest, but by its third-quarter 2021 earnings, revenue growth had fallen to 43% from  125% in the second quarter. Revenue growth in the fourth quarter of 2021 again slumped to 20%, then 18.5% in the first quarter of 2022.

Now the elephant in the room is TikTok. The wildly successful platform has added serious competition for social media eyeballs. Ad revenue at the newcomer is expected to reach $11.6 billion in 2022, representing a 200% increase from 2021. In contrast, Pinterest's revenue is expected to grow 15% from $2.58 billion in 2021 to $2.97 billionin 2022.

Person at a computer looking at social media on their smartphone.

Image source: Getty Images.

In recent years, ad revenue growth at Pinterest and other social media platforms have enamored investors. So, it can be easy to forget that ad spending is very cyclical. In a slowing economy, advertisers don't get the same bang for their buck as they would in good times. Likewise, they must protect profits and cut costs.

Level playing field

As second-quarter earnings roll out for other social media stocks, things appear to be getting worse. On Thursday, Snap reported revenue of $1.11 billion, which missed analysts' expectations of $1.14 billion. Snap said the macro environment had eroded faster than they had thought, and the company did not provide guidance for the remainder of the year. Shares plummeted after the report. Pinterest shares were down as much as 14% in sympathy.

Then on Friday, Twitter reported a 2% gain  in advertising revenue after posting 23% growth  in the first quarter. Twitter management also blamed macro headwinds . Pinterest will share its second-quarter results on Aug. 1.

Interestingly, traditional ad agencies are singing a more euphoric tune. Last week, Omnicom reported that organic growth in its advertising business  grew 8% year over year. Organic growth takes out things like growth by acquisitions or foreign currency changes. In addition, it raised its full-year organic growth forecast for the third time  this year to between 6.5% and 7%.

Advertising agency Publicis also increased its forecast. The company now expects full-year organic growth from 6% to 7%, up from the 4% to 5% forecasted earlier in the year.

The agencies face the same macro risks as their social media counterparts, but their growth is trending up while social media growth is trending down. So, it stands to reason that Apple's privacy changes may have leveled the playing field by limited social media's advantage with advertisers who are now leaning more heavily on agencies.

Pinterest shares are down a nauseating 75% over the last year. That could indicate that much of the bad news is priced into the stock, but the advertising industry landscape seems to be amid a fundamental shift that is not in Pinterest's favor. Stocks are down this year, and long-term investors have abundant opportunities. Pinterest may not be one of them.