In its Tuesday report, Snap Inc. failed to meet the revenue estimates of analysts and provided a forecast that was slightly below Wall Street’s expectations. Consequently, the company’s stock plummeted by 30% during after-hours trading. Here is the overview of the company’s performance:
– Earnings per share: Adjusted at 8 cents, as opposed to the 6 cents predicted by analysts, according to LSEG (formerly known as Refinitiv).
– Revenue: $1.36 billion, falling short of the expected $1.38 billion, according to LSEG.
– Global Daily Active Users: 414 million, surpassing the estimated 412 million, according to StreetAccount.
– Average revenue per user: $3.29, compared to the anticipated $3.33, according to StreetAccount.
Snap has faced challenges in recovering from the decline in the digital ad market and has reported six consecutive quarters of either minimal growth or sales reductions. In the fourth quarter, the revenue increased by approximately 5% year-over-year, reaching $1.36 billion compared to $1.3 billion in the previous year. The company attributed some of its underperformance to the conflict in the Middle East, which began in October with Hamas’ offensive against Israel. In a letter to investors, Snap noted that the onset of the Middle East conflict created a headwind, resulting in an approximately 2 percentage point decrease in year-over-year growth in Q4.
Despite expectations for growth acceleration in the first quarter, the forecast was slightly lower than analysts’ projections. Snap anticipated sales of $1.095 billion to $1.135 billion, which represents an approximately 11% growth at the midpoint of the range. This figure was below the analyst consensus of $1.117 billion. The company also projected that the Daily Active Users for the first quarter would reach 420 million, slightly surpassing the estimated 419.3 million.
Following the report, Snap shares dropped to under $12. Prior to the earnings announcement, the stock had closed at $17.45 and had seen a 3% increase for the year. This came after a remarkable 89% surge in 2023. Earlier in the week, Snap announced a 10% reduction in its global workforce, equivalent to approximately 500 employees. According to a company spokesperson, the layoffs were intended to streamline staff and foster in-person collaboration by reducing hierarchy. In 2022, Snap had already laid off around 1,000 employees, which accounted for 20% of its full-time workforce.
The company’s net loss for the quarter shrank to $248.2 million, or 15 cents per share, marking a 14% year-over-year decrease from $288.5 million, or 18 cents per share. Snap stated an anticipated adjusted EBITDA loss in the first quarter between $55 million and $95 million, surpassing analysts’ projections of $21.9 million. In the previous quarter, Snap had provided an “internal forecast” for the fourth quarter due to the unpredictability brought on by the Israel-Hamas conflict.
Snap disclosed the sales performance of its Snapchat+ subscription service for the first time on Tuesday, revealing an annualized revenue run rate of $249 million in 2023. The service has now garnered 7 million subscribers, up from 5 million in the previous quarter. Introduced in 2022, the product was initially priced at $3.99 a month and advertised as a means for users to access early features.
Snap’s fourth-quarter growth fell behind that of larger digital ad competitors such as Meta, Amazon, and Alphabet, all of which reported double-digit expansion in their advertising segments. Debra Aho Williamson, an industry analyst, highlighted the challenges faced by Snap and Pinterest, referring to them as “much smaller companies that have struggled to build substantial ad businesses”. She added that “In this environment, the big are getting bigger.”
Last week, Snap CEO Evan Spiegel participated in a Senate Judiciary Committee hearing on child safety and technology, alongside other tech executives including Meta CEO Mark Zuckerberg, X CEO Linda Yaccarino, TikTok CEO Shou Zi Chew, and Discord CEO Jason Citron. The executives were admonished by lawmakers for failing to adequately protect their platforms from child predators and other concerns.
On Thursday, Pinterest is set to announce its fourth-quarter earnings.
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