Snap Plummets Following Disappointing Forecast

Snap Inc. (NYSE: SNAP), the parent company of Snapchat, experienced a significant stock decline of over 19% following the release of its second-quarter guidance, which fell short of analysts’ expectations.

While Snap’s second-quarter results exceeded analysts’ estimates, the company’s forecast for the current period disappointed. Overall sales for Q2 decreased by 4% compared to the previous year, marking the second consecutive quarter of year-over-year revenue decline.

The company reported a loss of $0.02 per share, which was below the $0.04 cents analysts had anticipated. However, Snap’s revenue exceeded expectations, reaching $1.07 billion compared to the estimated $1.05 billion.

Moreover, the number of Global Daily Active Users (DAUs) stood at 397 million, surpassing the projected 394.9 million while average revenue per user slightly also exceeded expectations, amounting to $2.69 compared to the anticipated $2.68.

Despite the decline in sales, Snap managed to reduce its net loss by 11% to $377.3 million, or 24 cents per share, during the second quarter, compared to $422.1 million, or 26 cents, in the same period last year.

Snap’s financial guidance for the third quarter is based on the assumption that the company’s daily active users will reach between 405 million and 406 million. The projected total sales for Q3 are expected to range between $1.07 billion and $1.13 billion, indicating a “negative 5% to flat year-over-year growth.”

Analysts had predicted Snap to report $1.13 billion in sales for Q3, along with 406 million daily active users in the same period.

Notably, Snap did not provide formal guidance for the second quarter last year but disclosed an “internal forecast” for revenue estimates during that period.

Snap, like many tech companies, implemented a major cost-cutting plan in 2022, including laying off 20% of its workforce, resulting in an 8% year-over-year reduction in operating expenses during the second quarter of 2023.

Snap’s CEO, Evan Spiegel, expressed excitement about the progress the company has made in increasing return on investment for advertising partners.

“We are excited by the progress we have made delivering increased return on investment for our advertising partners, growing our community to 397 million daily active users, and reaching more than 4 million Snapchat+ subscribers,” said Spiegel.

In the digital advertising market, analysts are closely monitoring Snap’s earnings for signs of recovery. The market may be experiencing a modest rebound, according to several industry surveys, including one from William Blair, which noted a slow rebound in digital ad spend despite an overall soft online advertising market.

Snap, like other social media companies, is grappling with a decline in advertising revenue due to fierce competition from rivals like TikTok and Instagram, as well as changes in Apple’s app privacy policies that initially disrupted social media companies’ strategies.

To retain user engagement, Snapchat introduced new AI features, with some reserved exclusively for its paid subscribers. Snap’s AI chatbot, My AI, has been integrated into group chats, place recommendations, and Lens suggestions.

Snapchat’s paid subscription service, Snapchat+, launched a year ago, offering a collection of premium perks for $3.99 per month. The service has garnered over 4 million paid subscribers. The trend of paid memberships and premium tiers has gained traction among social media companies, especially after Apple’s policy changes restricted user behavior tracking.

Information for this briefing was found via CNBC, TechCrunch, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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