Snap Stocks Falls after Q4 2022 Earnings Miss Estimates

Snap (NYSE: SNAP) stock is trading lower in early US price action today after the company spooked markets with its Q4 2022 earnings. It is the fourth consecutive quarter when the stock has crashed after the earnings release.

Snap posted revenues of $1.30 billion in the quarter which was slightly below the $1.31 billion that markets were expecting. The company’s revenues were similar to the corresponding quarter last year.

Snap reported flat revenues in Q4 2022

It is nonetheless the slowest pace of rise since the company went public in 2017. Snap’s revenue growth had previously stalled to an all-time low of 6% in Q3 2022. In the full year, the company’s revenues increased 12% to $4.6 billion.

To put that in perspective, Snap’s revenues rose 64.2% in 2021. In the preceding three years, the company’s revenues rose by over 40% every year. There has been a slowdown in digital ad sales which has taken a toll on the revenues of companies like Snap and Meta Platforms.

Even Meta Platforms’ revenues fell YoY in the previous two quarters. The company reports its earnings later this week which would provide more insights into the turmoil in the digital ad market.

Social media companies are battling a slowdown

Alphabet would also report its earnings this week. In Q3 2022, while its Google search revenues were slightly higher YoY, YouTube’s revenues fell YoY for the first time ever.

TikTok is giving a tough fight to US social media companies. The macroeconomic slowdown has further hit social media companies’ fortunes. To make things even worse, we have the high base year effect. The Apple iPhone rules did not help matters either and Meta Platforms estimated that the new rules would hit its 2022 revenues to the tune of $10 billion.

Snap earnings fell short of estimates

Snap posted an adjusted EPS of 14 cents in Q4 2022 which were ahead of the 11 cents that markets were expecting. However, the earnings beat was more than overshadowed by the tepid guidance.

The company said that its “internal forecasts” suggest a revenue decline between 2-10% in the first quarter. So far in the quarter, the company’s revenues have fallen 7%. The guidance fell well short of analysts’ estimates. Wall Street analysts were expecting the company’s Q1 2023 to be slightly higher YoY.

Key takeaways from Snap Q4 2022 earnings

Snap reported 375 DAUs (daily active users) at the end of 2022 which was 17% higher than the previous year. The metric however fell slightly short of what the market was expecting. Its average revenue per user was $3.47 which was slightly below the $3.49 that analysts were expecting.

Snap said that it has over 2 million subscribers for the premium Snapchat+ offering. The company expects that at the end of Q1 2023, it would have between 382-384 million users.

During the earnings call, Snap co-founder and Chief Executive Evan Spiegel said, “From our recent conversations with our partners, it seems like advertising demand hasn’t really improved, but it hasn’t gotten significantly worse either.”

Snap’s investor letter stated, “We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs of capital.”

Meanwhile, as has been the case for the last few quarters, other social media stocks are trading lower after Snap’s earnings release.

Tech layoffs have increased

Snap was among the first social media companies to flag slowdown fears. It was also ahead of the curve in reducing its workforce. After Snap’s layoffs, later last year Meta Platforms also laid off 13% of its workforce. More recently, Alphabet also announced mass layoffs. Among Big Tech companies only Apple has so far restrained from mass layoffs.

Social media slowdown could last longer

Jasmine Enberg, an analyst at Insider Intelligence, said in an interview on Bloomberg TV, said, “These challenges are affecting all of the social media platforms, and I do not think it is wrong to be worried about the state of social media advertising right now.” She added, “We have to be ready for a period of more modest growth in social media in general.”

Social media companies are also adapting to the challenges. Meta Platforms, for instance, is betting on the metaverse to revive its growth. However, the metaverse investments have been a drain on the company’s profits and the business is reporting billions of dollars in losses every quarter.

In its investor letter, Snap said, “Despite a challenging macroeconomic environment, we believe that we have a clear path to generating meaningful adjusted EBITDA profitability and positive free cash flow even at low rates of revenue growth.”

Wall Street is meanwhile not totally buying the argument and Snap stock is trading down over 15% today in premarkets. Markets would next look forward to earnings from Alphabet and Meta Platforms as the slowdown in digital ad markets does not seem to be withering away in a hurry.


Business Asia
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