It Will Take Much More Than A Snap For Snap To Overcome Its Challenges

While the social media king, Facebook parent, Meta Platforms META is scheduled to report its second quarter results after the bell, the far less powerful social media messaging business Snap Inc SNAP reported on Tuesday it has succeeded to narrow its losses, but positivity was not in the air with weaker-than-expected guidance and slowing down revenue. Despite the fact that Snap’s second results topped analyst estimates, shares tanked more than 17% upon the report.

Second Quarter Highlights

For the quarter that ended on June 30th, sales contracted 4% YoY from the $1.11 billion Snap logged during 2022’s comparable quarter to $1.07 billion, topping $1.05 billion that Refinitiv’s analysts expected. The average revenue per user amounted to $2.69, slightly topping StreetAccount’s estimate of $2.68 with Snapchat gathering the attention of 397 million daily active users across the globe. StreetAccount expected 394.9 million DAUs. But, at the end of the day, quarter that is, Snap still made an adjusted loss of 2 cents per share. Yet, it was better than Refinitiv’s expectation of 4 cents per share loss with Snap succeeding to narrow down its net loss by 11% YoY to $377.3 million, or 24 cents per share. This is Snap’s sixth consecutive loss.

Just like Meta and other tech companies, Snap is undergoing a major cost-control restructuring, having trimmed its workforce by 20% and lowering its second quarter operating expenses 8% YoY.

Snap’s Third Quarter Guidance Was Weak

Based on the assumption that Snap’s base of daily active users will expand further and reach the range between 405 million and 406 million, management guided for revenue in the range between $1.07 billion and $1.13 billion which translates to a negative 5% to flat YoY growth.

Advertising Remains A Challenge

Several surveys suggested that the online advertising market is undergoing a modest rebound. But Snap had a much more difficult time dealing with the ad slump compared to other and bigger social media peers, like Meta, simply because it is smaller and its audience is narrower, and this is not the kind of door that advertisers will knock on first. Not to mention the fact that one of Snap’s rivals, Tik Tok, has gained users more rapidly and has now exceeded it in size.

Snap Is Just Having A Harder Time Than Others

Even Meta is feeling the punch from an unfavorable macro environment along with regulatory tension in the air. But, Meta’s second quarter report comes after first quarter’s revenue increase while Snap has now reported a second straight period of declining YoY revenue. But even Meta had three consecutive periods of revenue decline before that while this was Snap’s first quarterly decline in sales its 2017 public debut. But the bigger picture is that Snap is still struggling to make it work with CEO Evan Spiegel admitting that the social media company is still far from achieving its revenue growth goal. In simple words, Snap is just not succeeding in bringing in more advertising, an area that Meta continues to champion. Snap is doing its best by diversifying its money sources such as by introducing Snap+ last year and gained 4 million subscribers as a result. It did succeed to attract more creators with a revenue-sharing program and by testing sponsored links in its AI-powered chatbot My AI, but this isn’t enough to overcome its challenges which are likely to stay along with the macroeconomic slump. In other words, Snap’s actions are not moving the needle simply because Snap does not have Meta’s power that is reflected in its userbase, business model and financials.

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