Snap Inc stock cratered after the company reported disappointing sales, roiled by a major slowdown in advertising spending and rising competition for dwindling marketing dollars. Shares of Meta Platforms Inc and Alphabet Inc fell in tandem.
Second-quarter revenue grew 13% to $1.11bn, the company said on Thursday, falling short of analysts’ expectations for $1.14bn. Snap told investors in May to disregard its initial growth guidance, which the company ultimately missed.
Advertisers are slashing budgets more than expected - a trend the company attributed to broad economic uncertainty. Snap makes the popular Snapchat app, which reached 347mn daily active users in the quarter. Its user growth outpaced rivals Facebook and Twitter and topped analysts’ estimates. But it wasn’t enough.
“The combination of macroeconomic headwinds, platform policy changes and increased competition have limited the growth of campaign budgets,” the company said in an investor letter Thursday. The results “do not reflect the scale of our ambition,” Snap added. “We are not satisfied with the results we are delivering, regardless of the current headwinds.”
Due to the economic uncertainty, the company didn’t issue financial guidance for the third quarter, except to say that - this far into the period - revenue is about flat compared with last year. In the second quarter, Snap posted a net loss of $422mn, more than the $332.7mn average estimate.
Snap shares plunged 32% in premarket trading after closing at $16.35 on Thursday. The stock had already fallen about 65% this year prior to the announcement. Snap management has told employees of plans to limit hires, and reiterated the strategy Thursday, saying it plans “a substantially reduced rate of hiring.”
“Snap appears likely to face worse-than-expected ad-pricing pressure, driven by a pullback in spending as well as Apple’s privacy changes. The company’s view of 3Q revenue being about flat year-over-year suggests its headwinds aren’t likely to abate in the near term,” says Mandeep Singh, BI senior technology industry analyst.
Investors will be watching Snap for clues on the performance of other advertising-dependent social media businesses. Twitter reported its second-quarter results on Friday and showed revenue declined 1% in the period, the first drop since the middle of the pandemic in 2020. The company cited “advertising industry headwinds associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter,” as factors in the disappointing results. Meta and Alphabet also report earnings this month.
Snap, Meta-owned Facebook and Alphabet-owned Google are competing for advertising dollars at a challenging time. Spiralling inflation is putting pressure on companies and consumers’ spending. Meanwhile, new rules from Apple Inc. that require all apps to get a smartphone user’s permission to be tracked online have made it more difficult for advertisers to measure and manage their ad campaigns.
“We’re seeing the overall advertising pie grow at a smaller rate, and that essentially intensifies the competition,” Snap chief financial officer Derek Andersen said on a call to analysts and investors Thursday.
Fast-growing competitor TikTok, with its endless feed of short-form videos, has been swiftly luring users and advertisers to its platform. It now has about 1bn users in the US, who spend more time on the app monthly than they do on Instagram and Facebook combined, according to mobile researcher Data.ai. In response, Instagram, Facebook, YouTube and Snap have all added similar vertical-video feeds in response. “The economy and these changes to Apple in particular have really accelerated a lot of the problems that were existing for a lot of these social media companies,” said Jasmine Enberg, principal analyst at Insider Intelligence.
“The reality here is public behaviour is shifting to more public sharing - the TikTok-like short video entertainment. TikTok has really shaken up the social media world.”
To weather this environment, chief executive officer Evan Spiegel is investing in three main priorities: initiatives that continue to grow its user base, improving its direct-response advertising business and how it measures ad spending, and finding new sources of revenue to diversify the company.
In the last quarter, the company rolled out a number of user-focused tools. Snapchat+ is a subscription service that allows power users to access “exclusive” and “experimental” features for $3.99 a month.
Snapchat for Web was made available to users in certain markets, extending voice and video calling, and chat tools to desktops.
