Jan 31, 2023 - Economy

Snap earnings forecast gloomy week for Big Tech

Illustration of several cursors as islands in the oceans.

Illustration: Aïda Amer/Axios

Shares in Snap Inc. fell more than 13% in after-hours trading Tuesday, after the company said it missed Wall Street expectations for revenue growth in the fourth quarter and offered a somewhat bleak outlook for the current quarter.

Why it matters: Snap typically serves as a bellwether for other ad-supported internet stocks, like Meta and Pinterest, which are scheduled to report earnings in the next week.

  • Both those stocks took a small hit in after-hours trading Tuesday.

What's next: While Snap didn‘t issue any official revenue guidance for the first quarter of 2023, it said it's internally forecasting a year-over-year revenue decline for Q1.

Details: In a letter to investors, Snap acknowledged that 2022 was a challenging year, due to macroeconomic factors, increased competition and "platform changes."

  • That language presumably refers to competition from TikTok and changes in Apple’s app tracking policies that made it harder for advertisers to target ads on apps like Snap.
  • The company grew revenues only slightly last quarter compared to the same quarter in 2021. But for the whole year, a healthier ad market in the beginning of 2022 led to an overall revenue increase of 12% in 2022 over 2021.

Be smart: Snap continued to cite weakness in demand for brand advertising, or TV-like ads that help companies tout their reputation. That business declined 11% last quarter compared to the same quarter in 2021.

  • Brand advertising is typically the first type of marketing spend that companies cut in tough economic times.
  • Direct response ads, on the other hand, fared better, increasing 4% year-over-year last quarter. Snap touted continued improvements in the company’s direct response ad technology as a point of optimism moving forward.

By the numbers, via CNBC:

  • Earnings per share: $0.14, adjusted, versus $0.11 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.

The big picture: Snap’s total users are expected to continue growing faster than its revenues in the next quarter.

  • The company projects it will add between 7 and 9 million daily active users in Q1 2023, while the operating environment ”remains challenging” on the monetization side.
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