Snap stock drops more than 25% as online advertising continues to struggle

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A bruising year for Snap Inc. shares worsened on Thursday, as the stock fell more than 25% in after-hours trading as executives launched the first major buyback program. shares amid revenue problems in a poor environment for online advertising.

Snap SNAP,
-0.64%
Executives revealed revenue grew less than 6% year-over-year in the third quarter – its slowest quarterly growth on record – and said the holiday season is going the same way, with sales increasing only 9% so far in the quarter. The social media company, which laid off around 20% of its staff this summer in response to the issues, also declined to provide a full forecast for the important fourth quarter.

“Our revenue growth continued to slow in the third quarter and continues to be impacted by a number of factors that we have noted over the past year, including platform policy changes, headwinds macroeconomic conditions and increased competition,” the executives said in a letter to shareholders outlining the results. “We are seeing our advertising partners across many industries shrink their marketing budgets, particularly in the face of operating environment headwinds, inflation-induced cost pressures and rising capital costs.”

“Forward-looking revenue visibility remains incredibly challenging, and this is compounded by the fact that fourth quarter revenue is typically generated disproportionately in the second half of the quarter, further reducing our visibility,” the executives explained about lack of guidance in the letter. to investors.

The board of directors approved a $500 million share buyback, a first for the young company. In a press release, executives said the move was intended to “opportunistically offset some of the dilution associated with the issuance of restricted stock units to employees as part of the overall compensation program designed to favor a culture of ownership”. Snap is also in the midst of an augmented reality campaign to diversify and grow its sales.

During an abbreviated 30-minute conference call with analysts Thursday night, Snap chief executive Evan Spiegel was repeatedly pressed on how the company intended to get people to spend more time and money in service. Spiegel emphasized the AR push and content engagement through Spotlight, a new tab in the Snapchat app that displays short-form video content, or “Spotlight Snaps.”

Snap results — the first this quarter among large tech companies that rely heavily on digital advertising – likely heralds even more turbulent times for Alphabet Inc.’s GOOGL,
+0.34%

GOOG,
+0.24%
Google, the parent company of Facebook Meta Platforms Inc. META,
-1.28%,
Twitter Inc. TWTR,
+1.18%,
PIN Pinterest Inc.,
-0.30%
and others plagued by inflation, a war in Ukraine, currency problems and a deepening recession.

Snap’s rambling news sent shares tumbling in extended trading for Pinterest (-8%), Trade Desk Inc. TTD,
+2.26%
(-5), Meta (-4%) and Google (-3%).

Deteriorating macroeconomic conditions left advertisers with no choice but to delay or cancel purchases. At the same time, heightened competition from TikTok and others has deepened the headwinds.

“As a smaller player, Snap is more responsive, but no platform is immune,” Insider Intelligence analyst Jasmine Enberg told MarketWatch. “I expect more of the same results next week” when Google and Meta report, she added.

Snap reported a net loss of $359.5 million in the third quarter, or 22 cents per share, compared with a loss of 5 cents per share a year ago. Analysts on average had expected a loss of 24 cents per share.

Snap’s sales rose less than 6% to $1.13 billion, barely shy of Street’s estimate of $1.14 billion. Daily active users increased by 19% to 363 million. FactSet analysts had modeled 358.2 million.

Snap shares initially fell more than 25% in after-hours trading. They closed the regular trading session down 0.6% at $10.79. Snap shares have plunged 77% this year, while the S&P 500 SPX index,
-0.80%
is down 23%.

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