Snap Shares Plummet on Lackluster Revenue as Problems with Digital Advertising Persist

Snap Shares Plummet on Lackluster Revenue as Problems with Digital Advertising Persist

Tuesday’s (January 31, 2023) extended trading saw a more than 14% decline in Snap shares after the social media company revealed fourth-quarter revenue that fell short of analysts’ projections.

Here’s how the company did:

  • Earnings per share: 14 cents, adjusted, versus 11 cents expected, according to a Refinitiv survey of analysts
  • Revenue: $1.30 billion versus $1.31 billion expected, according to Refinitiv
  • Global Daily Active Users (DAUs): 375 million versus 375.3 million expected, according to StreetAccount
  • Average revenue per user: $3.47 versus $3.49 expected, according to StreetAccount

It’s the third disappointing earnings report in a row for Snap investors. On the heels of the company’s Q3 earnings report in October, shares dropped 28% due to weak sales. After the Q2 report in July, the stock fell 39% as a result of failed top and bottom line targets.

Revenue in the fourth quarter was up slightly from a year earlier. Like its social media rivals Meta and Twitter, Snap also struggled in 2022 as businesses cut back on their digital advertising spending and Apple’s iOS privacy upgrade restricted targeting options.

In a letter to investors, Snap called it a “challenging year” that was marked by “macroeconomic headwinds, platform policy changes, and increased competition.

For the full year, sales rose 12% to $4.6 billion in 2022. In its earnings statement, Snap said it wouldn’t provide guidance for the next period. However, according to the company’s investor letter, its “internal forecast” anticipates a fall of between 2% and 10% from a year ago. Analysts anticipated a modest rise in revenue.

“On the monetization side, we anticipate that the operating environment will remain challenging, as we expect the headwinds we have faced over the past year to persist throughout Q1,” the company said in the letter.

For ad-supported online companies, the fourth quarter earnings season has gotten off to a shaky start. Later this week, investors will have a better idea of the status of that market. Facebook parent Meta reports fourth-quarter results on Wednesday, followed by Google parent Alphabet and Amazon on Thursday.

Meta shares dropped 2% after Snap’s report. Pinterest, which releases results next week, fell almost 5%.

Snap’s stock plummeted 81% last year as the Nasdaq Composite had its worst year since 2008. The stock has recouped some of its losses, rising 29% in January, along with a broader rally in the tech sector.

The business said that it is shifting its efforts to focus on enhancing community participation, speeding and diversifying sales growth, and creating augmented reality technology.

It said its Snapchat+ service now has over 2 million paying subscribers as of the fourth quarter. Snap debuted its subscription service last summer, pitching it as a way for users to access pre-release and exclusive features for $3.99 a month.

The company’s online ad platform was created to be simple to use and to allow brands to quickly launch campaigns, as executives repeatedly stated to investors last year. However, because of how easy it was to use, businesses could easily pause campaigns, seriously harming Snap’s financial situation.

Snap announced in August it would lay off 20% of its workforce of over 6,000 employees. Throughout the year, the business also put on hold a number of initiatives, including its premium Snap Originals shows and drone for snapping photos.