Snap shares plunge on weak revenue as digital ad struggles continue
- Snap missed on revenue for the fourth quarter but beat on earnings.
- Snap had a rough 2022 as a slowing economy led numerous companies to slash their digital ad budgets.
- For a third straight quarter, the social media company is declining to provide guidance, though it says its "internal forecast" assumes a sales decline of between 2% and 10% from a year earlier.
Snap shares slid more than 14% in extended trading on Tuesday after the social media company reported fourth-quarter revenue that trailed analysts' estimates.
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. The day after the company's Q3 earnings report in October, shares fell 28% on disappointing revenue. The stock lost 39% following its Q2 report in July after it missed on both top and bottom lines.
Revenue in the fourth quarter was up slightly from a year earlier. Like social media peers Meta and Twitter, Snap had a rough 2022 as a slowing economy led businesses to slash their digital ad budgets and Apple's iOS privacy update limited targeting capabilities.
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, in the investor letter the company said its "internal forecast" assumes a decline of between 2% and 10% from a year earlier. Analysts were expecting a small increase 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.
It's an ominous start to fourth-quarter earnings season for ad-supported internet companies. Investors will get a clearer picture of the state of that market later this week. 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 company said it's refocusing investments to concentrate on growing its community and engagement, accelerating and diversifying its sales growth and developing augmented reality technologies.
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.
As executives told analysts several times last year, the company's online ad platform was built to be easy to use and to enable brands to quickly launch campaigns. But its simplicity also meant that companies could quickly pause campaigns in such a way as to severely affect Snap's finances.
Snap announced in August it would lay off 20% of its workforce of over 6,000 employees. The company also shelved several projects during the year, including its photo-taking drone and Snap Originals premium shows.
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