Snap Couldn't Snap Out of Apple's Privacy Changes

On Thursday, Snap Inc SNAP reported its third-quarter earnings which clearly show revenue suffered due to Apple Inc's AAPL iPhone privacy changes that disrupted the advertising business. Although this was expected, the impact was stronger than anticipated. The stock fell 22% upon the news as the company also warned that global supply chain interruptions and labor shortages are reducing the "short-term appetite to generate additional customer demand through advertising." Shares of rivals Facebook FB and Twitter were also down approximately 7% in after-hours.

Third-Quarter Figures

Adjusted earnings per share amounted to 17 cents, more than double the 8 cents estimated by Refinitiv, but revenue of $1.07 billion fell short of Refinitiv's forecast of $1.10 billion.

Snap's community now has 306 million global daily active users (DAUs) as it grew 4% from the figure reported in April and almost 23% from last year's comparable quarter. It exceeded the StreetAccount estimate of 301.8 million, with the average revenue per user (ARPU) being $3.49, slightly below the expected $3.67.

At a somewhat brighter note, net loss narrowed 64% from a loss of $200 million a year ago to $72 million.

Making Snapchat Safer

While Facebook and its owned Instagram are under scrutiny on the way they are managing their teenage audience, the company is taking action to ensure a safer experience for its youngest users by working on a set of family safety tools. It is building insights for parents that reportedly won't compromise privacy or data security. According to CEO Evan Spiegel, one of the goals of this initiative is to open up a dialogue between parents and their children about their experiences on the app. The main goal is to get into parents' good graces and protect teens without comprising the privacy of the app's users.

Fourth-Quarter Guidance

For the undergoing quarter, the company expects to gather DAUs in the range between 316 million and 318 million, which is more optimistic that the StreetAccount estimate of 311.8 million.

Accounting for headwinds posed by Apple's privacy changes, supply chain disruptions, and labor shortages that are expected to stick around for a while, fourth-quarter revenue is expected to be in the range between $1.16 billion and $1.20 billion, short of the $1.36 billion Refinitiv's survey of analysts expected. Unfortunately, these changes are taking place when supply chains should be operating at peak capacity and with peak advertising demand driving peak contestation, and therefore peak pricing.

Long-Term Goal Remains Intact

In a nutshell, although some degree of business disruption was anticipated due to Apple's improved privacy changes that Spiegel himself praised, the impact was greater as it made it more difficult for advertising partners to measure and manage their ad campaigns for iOS. Although the dynamics of these challenges are difficult to predict, the growth of the audience, the community's adoption of Snap's new products, and the attractiveness to advertisers give the company confidence to be able to navigate this storm as it continues its path towards its long-term vision.

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