Jan 31, 2023
Snap tumbles on projected sales drop in warning for Meta, Google
Companies like Meta are at risk of losing a piece of the 'pie' to emerging companies: Angelo Zino
Snap Inc. shares tumbled about 15 per cent in premarket trading after the company projected its first ever quarterly revenue decline, casting a shadow over other advertising-dependent companies.
The Snapchat parent said sales are expected to drop as much as 10 per cent in the current period from a year earlier amid a flurry of changes to its advertising products. In the fourth quarter, sales were flat at US$1.3 billion, marking the first-ever quarter of no growth since the company went public six years ago.
Snap kicked off a busy week of earnings for peers that rely on digital advertising for a majority of their revenue. Facebook parent Meta Platforms Inc. releases its results Wednesday after the market closes while Google parent Alphabet Inc. reports on Thursday. All three have been roiled by more than a year of upheaval prompted by Apple Inc.’s privacy changes that that made it more difficult to personalize and track the success of ads on their apps.
Snap is making changes focused on its direct-response business — ads that prompt users to take an immediate action like buying a product or signing up for an email list. That’s been a key piece of the company’s money-making operation, especially in recent quarters when economic uncertainty has led marketers to cut back on spending.
So far in the current period, Snap has seen a 7 per cent decline in revenue compared to last year, according to a letter to investors.
The company posted a net loss of US$288.5 million, or 18 cents a share, including US$34 million in charges from its workforce restructuring. That compared to a profit of US$23 million, or one cent, a year earlier.
Snap ended the fourth quarter with 375 million daily users, for a 17 per cent increase. In the first three months of the year the company estimates 382 million to 384 million people will use its platform daily.
Snap has become a bellwether for other digital advertising companies. Last year, it was the first to raise concerns about the slowdown in marketer spending online and to fire a significant number of employees — 20 per cent of its workforce — to cut costs in the face of falling revenue.
The company has spent the last two quarters refocusing the organization, cutting projects that don’t contribute to user and revenue growth.
In the first quarter, Snap expects the environment to “remain challenging as we expect the headwinds we have faced over the past year to persist.”
The stock has lost almost two-thirds of its value in the twelve months through Tuesday’s close. Meta shares were down about 1 per cent early Wednesday and Alphabet was little changed.