Snap stock plunges amid record slow revenue growth
Shares in Snap Inc. plummeted more than 20% Thursday after the camera app reported its slowest-ever quarter for revenue growth since going public in 2017. It also declined to provide revenue or earnings guidance for the fourth quarter, given uncertainty in the economy.
Why it matters: Wall Street was looking to Snap to deliver good news about the broader ad market. The company's share price had already declined more than 75% this year going into earnings.
Details: In a letter to investors, Snap said its business "continued to face significant headwinds in the third quarter" but that it remains bullish on its strategy thanks to previously-announced plans to cut costs and prioritize monetization.
- Looking ahead to the fourth quarter, which is typically Snap's most lucrative thanks to holiday season ad sales, the company said it's "highly likely" that year-over-year revenue growth will decelerate.
- So far in Q4, Snap says it's seeing revenue growth of approximately 9% year-over-year, but because its fourth quarters are historically weighted much more heavily towards the back half of the quarter, it's making the assumption internally that year-over-year revenue growth will be roughly flat next quarter.
- By comparison, last year the company saw a 42% year-over-year revenue growth it saw during the fourth quarter compared to 2020.
Why it's happening: Snap says it saw a pullback in the third quarter on spending in brand ads, or ads that tout a company's reputation rather than trying to sell a product directly. Snap's fourth quarter is typically more dependent on brand ads than other quarters.
- When the economy starts to show signs of a slowdown, marketing spend, and particularly brand marketing spend, is one of the first expenses that companies tend to cut.
Between the lines: Snap otherwise reported mixed results for the third quarter.
- The company beat analyst expectations on earnings per share, but missed expectations on revenue growth.
- It also lost much more money last quarter ($359 million) compared to the third quarter of the previous year ($72 million).
- Still, it managed to grow its user base well ahead of Wall Street expectations. The increased its daily active user 19% year-over-year 363 million.
By the numbers, via CNBC:
- Earnings per share: 8 cents, adjusted, versus a small loss just shy of breakeven expected, according to a Refinitiv survey of analysts
- Revenue: $1.13 billion versus $1.14 billion expected, according to Refinitiv
- Global Daily Active Users (DAUs): 363 million versus 358.2 million expected, according to StreetAccount
The big picture: The earnings report compounds a volatile year for the company, which announced a restructuring that included laying off 20% of its workforce in August.
- In addition to macroeconomic challenges, Snap continues to face growing competition from TikTok.
- Changes to Apple's app tracking policies have also impacted ad sales for platforms like Snap.
Be smart: Snap, like other Big Tech rivals, has tried to diversify its revenue streams to be less dependent on advertising, which can be volatile depending on the health of the economy.
- The company said Thursday that Snapchat+, its subscription service, reached over 1.5 million paying subscribers in Q3 and is now offered in over 170 countries.
- More than 250 million people now engage with its augmented reality features on Snapchat every day and more than 300 million people engage with its Snap Map feature each month.
What to watch: Snap typically reports its quarterly earnings ahead of its biggest ad-driven social media competitors, making it a bellwether for the tech industry, as well as the ad market.
- Shares in Meta, Pinterest and Alphabet all fell in response to Snap's earnings Thursday afternoon.
- Growth in the ad market is slowing as the economy faces a possible recession. Analysts expect the slowdown to continue into 2023.