Huge Slump in Snap Inc. Shares after Disappointing Revenue in Q4
Overview
Snap Inc. shares plunged more than 30% in premarket trading on Wednesday following disappointing revenue results in the holiday quarter. The parent company of the popular Snapchat app reported a 5% increase in fourth-quarter revenue, reaching $1.36 billion, falling short of analysts’ projections and resulting in a challenging operating environment. The company is facing a steep climb to recovery as its main competitor, Meta Platforms Inc., posted a 25% increase in sales during the same period, its largest quarterly gain in two years. Snap’s struggle is largely attributed to changes made by Apple Inc. to its privacy settings, making it harder for advertisers to track iPhone users.
Restructuring Efforts
Snap CEO, Evan Spiegel, has been spearheading an extensive restructuring campaign over the past two years. This initiative involved trimming the workforce and terminating projects that failed to generate sufficient revenue or spur user growth. However, despite the cost cuts and layoffs, Snap’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) have been projected to take a significant hit in the current period – a loss of $55 million to $95 million, contrasting with analysts’ more modest expectations of a $33 million loss.
Adapting to Challenges
In response to the challenging market conditions rooted in Apple’s altered privacy settings and the conflict in the Middle East, Snap has embarked on a comprehensive makeover of its core business. The company aims to enhance ad targeting and measurement capabilities, along with expanding its direct-response advertising offerings. Despite some notable protocols in advertising effectiveness and expressing optimism in progress, the struggle persists. Snap’s revenue growth in the fourth quarter was adversely affected by about two percentage points due to the geopolitical tension.
New Revenue Streams and User Prioritization
In seeking alternatives to bolster revenue, Snap introduced Snapchat+, a subscription service that has already accumulated an impressive seven million paying users, generating an annualized revenue run rate of $249 million. Such success in monetizing subscribers sets Snap apart from other social media companies. However, the company’s pursuit of augmented reality offerings for retailers proved overly intricate and was consequently abandoned last year. Looking ahead, Snap aims to focus squarely on amplifying user growth and deepening engagement in its most lucrative markets, primarily North America and Europe.
Financial Outlook
In the first quarter, Snap projects revenue to range between $1.10 billion and $1.14 billion, a potential year-over-year expansion of up to 15%. The projected growth falls in line with the average estimates of market analysts. Notably, the company’s performance reveals a net loss of $248.7 million for the fourth quarter, significantly reduced from a year ago, and exceeding analysts’ average estimation. Earnings per share reached 8 cents, surpassing the projected 6 cents. Snap also anticipates incurring costs of $55 million to $75 million pertaining to the recent round of layoffs, primarily affecting the first quarter.
Conclusion
Snap Inc. faces a challenging road to recovery, with its share prices dropping significantly due to lower than expected revenue in the holiday quarter. Sluggish growth, primarily influenced by changes to Apple’s privacy settings and the geopolitical climate, has compelled Snap to undergo a period of restructuring. The company aims to enhance its ad platform, increase ad targeting, and prioritize user engagement and monetization, particularly in North America and Europe. While Snap seeks to diversify its revenue streams with the success of Snapchat+, it previously experienced setbacks in its efforts to build augmented reality offerings. With its projected revenue growth and further cost management, Snap anticipates overcoming these hurdles and advancing towards increased free cash flow.
