Snap shares sink following weak earnings report

Shares for Snap Inc. were down more than 26% in after-hours trading Thursday after the company said revenue growth would meaningfully slow in the months ahead.

Why it matters: In May, Snap warned investors it would miss its second quarter guidance. Wall Street's response to Snap's earnings report today, despite that mid-quarter warning, shows how spooked investors are by the severity of Snap's revenue headwinds.

• Snap suspended revenue and earnings guidance for the third quarter amid the uncertainty around its business, noting "[W]e believe it will likely take some time before we see significant improvements."

The big picture: Snap's weak projections dragged down other ad-supported tech giants including Alphabet, Meta and Pinterest, out of fear of what a slowed ad market will mean for their numbers when they start to report earnings next week.

Details: The company missed investor expectations on revenue and earnings for the second quarter.

• Snap Inc.’s average revenue per user (ARPU), fell year-over-year by 4% last quarter. It was the first year-over-year drop since the company went public in 2017.
• In an investor letter, the company noted that the second quarter of 2022 "proved more challenging than we expected."
• It cited platform privacy changes (likely a reference to Apple's new app tracking transparency efforts), macroeconomic challenges and increased competition for the slowed revenue growth.

Yes, but: Snap's user growth remained strong last quarter, beating Wall Street's expectations. The company added 15 million daily active users (DAUs) last quarter, bringing its total number of active users to 347 million globally.

By the numbers, via CNBC:

• Earnings per share: A loss of 2 cents, adjusted, versus expected loss of 1 cent, according to a Refinitiv survey of analysts
• Revenue: $1.11 billion versus $1.14 billion expected, according to Refinitiv
• Global Daily Active Users (DAUs): 347 million versus 344.2 million expected, according to StreetAccount

Be smart: Snap acknowledged that the momentum it experienced leading up to this point has been disrupted, and cautioned investors not to expect the same revenue growth levels they've become accustom to over the past four years.

• Between 2018, its first full year as a public company, through the end of 2021, Snap grew revenue at an average compound annual rate of more than 50%.

What's next: In a statement, Snap CEO Evan Spiegel said the company is evolving its business and strategy to reaccelerate revenue growth, "including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our topline growth."

• Speigel told employees in May that it plans to slow hiring for the remainder of the year. The company reiterated those plans to investors on Thursday saying it intends to "recalibrate" its investment levels.

Bottom line: "This is a mess. This is kind of the worst case scenario we could've envisioned," Rick Heitzmann, founder and partner of FirstMark and an early Pinterest investor, said on CNBC shortly after the earnings report was released.