Snap shares tumble following weak earnings report

Shares of Snap Inc. fell more than 26% in after-hours trading Thursday after the company said revenue growth would slow significantly in the coming months.

Why is this important: In May, Snap warned investors that 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 its third-quarter revenue and profit guidance amid uncertainty surrounding its business, noting “[W]We think it will probably be some time before we see significant improvements.”

The big picture: Snap’s weak projections have dragged down other ad-supported tech giants, including Alphabet, Meta and Pinterest, over fears of what a slowing ad market will mean for their numbers when they start reporting their numbers. back next week.

Details: The company fell short of investors’ expectations for second-quarter revenue and earnings.

  • Snap Inc.’s average revenue per user (ARPU) fell 4% year over year last quarter. It was the first year-over-year decline since the company went public in 2017.
  • In a letter to investors, the company Noted that the second quarter of 2022 “proved to be more difficult than expected”.
  • He cited changes to the platform’s privacy (likely a reference to Apple’s new app tracking transparency efforts), macroeconomic challenges and increased competition for slowing revenue growth.

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

By the numbers, via CNBC:

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

Be smart: Snap acknowledged that the momentum it has had so far has been disrupted and warned investors not to expect the same levels of revenue growth they have grown accustomed 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%.

And after: In a statement, Snap CEO Evan Spiegel said the company is evolving its business and strategy to accelerate revenue growth, “including innovating our products, investing heavily in our response advertising business direct and cultivating new revenue streams to help diversify our growth.”

  • Speigel told employees in May that he planned to slow hiring for the rest of the year. The company reiterated those plans to investors on Thursday, saying it intended to “recalibrate” its investment levels.

At the end of the line : “It’s a mess. It’s kind of the worst-case scenario we could have imagined,” Rick Heitzmann, founder and partner of FirstMark and one of Pinterest’s early investors, told CNBC shortly after the post. of the results report.