Wednesday Feb 7 2024 07:33
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Snap Inc. shares plummeted in after-hours trading on Tuesday following the social media firm's announcement of lower-than-expected profit forecasts for the March quarter — a sharp contrast to the strong recent results seen in other advertising-driven internet companies such as Meta Platforms and Amazon.
Meta, Amazon, and Google-parent Alphabet all reported double-digit expansions in their digital advertising units last week.
Debra Aho Williamson, an industry analyst, told CNBC that Snap and Pinterest are “much smaller companies that have struggled to build substantial ad businesses. In this environment, the big are getting bigger.”
Despite reporting a 5% increase in revenue to $1.36 billion for Q4 2023, Snap fell slightly short of the Wall Street consensus estimate of $1.138 billion, with its own projections having anticipated revenues between $1.32 billion and $1.375 billion, as per Barron’s reporter Eric J. Savitz.
On an adjusted basis, Snap outperformed expectations by earning 8 cents per share — two cents higher than the consensus estimate of 6 cents. However, according to generally accepted accounting principles (GAAP), the company reported a loss of 15 cents per share.
The company attributed some of the weakness to the war in the Middle East, which erupted in October, beginning with Hamas’ attack on Israel.
“While we are encouraged by the progress we are making with our ad platform and the improved results we are delivering for many of our advertising partners, we estimate that the onset of the conflict in the Middle East was a headwind to year-over-year growth of approximately 2 percentage points in Q4,” Snap said in a letter to investors shared by CNBC.
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Snap also noted an increase in global daily active users to 414 million for the quarter, marking a 10% rise from the previous year. Nevertheless, investor concerns were primarily centered around the company's disappointing profit outlook.
Snap expects to grow faster in the first quarter, but not as quickly as analysts were expecting. The company predicts its sales will be between $1.095 billion and $1.135 billion, which is an increase of 11% to 15% compared to last year. The average of their predicted sales is $1.115 billion — a bit lower than analysts’ average estimate of $1.117 billion, or 13% growth.
Yet, the company anticipates an adjusted EBITDA loss between $55 million and $95 million for the quarter — much wider than the forecasted $21 million loss expected by analysts.
Snap shares sank below $12 after Tuesday’s report. They closed at $17.45 and were up 3% for the year prior to the earnings announcement after soaring 89% in 2023.
At the time of writing on Wednesday morning, Snap shares were down 32.66% at $11.75, as per MarketWatch data.
Snap said that it is “focused on executing against our roadmap to deliver improvements to our direct-response advertising platform to drive improved results for out advertising partners and accelerate topline growth.”
This week, Snap announced a reduction of its global workforce by 10%, impacting approximately 500 employees.
A spokesperson for the company explained to CNBC that the move aims to reorganize staff and “reduce hierarchy and promote in-person collaboration”. This follows a significant downsizing in mid-2022 when Snap let go of around 1,000 staff members, amounting to 20% of its full-time employees.
A quote shared by Barron’s said the job cuts were aimed at “best positioning our business to execute on our highest priorities, and to ensure we have the capacity to invest incrementally to support our growth” over time.
On Tuesday, Snap also revealed the revenue details of its Snapchat+ subscription service for the first time, indicating an annualized revenue run rate of $249 million for 2023. The subscription base for Snapchat+ has grown to 7 million — a rise from 5 million in Q4 2023. Launched in 2022, Snapchat+ offers users the opportunity to access new features ahead of others, with a subscription fee set at $3.99 per month when it was introduced last summer.
For the December quarter, Snap's adjusted EBITDA was reported at $159 million — well above the FactSet-tracked analyst forecast of $111 million and exceeding the company's own predicted range of $65 million to $105 million.
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