Snap Got Crushed By Growth Concerns

Last week, Snap SNAP stock got crushed as they tumbled nearly a third after the social media company published its fourth quarter results on Tuesday, a day after announcing it will be cutting 10% of its global workforce as part of its reorganization that aims to reduce hierarchy and promote better collaboration. Even Facebook and Instagram owner, Meta Platforms META and Google and YouTube parent Alphabet GOOG were not immune to layoffs that plagued the industry.

But the world’s biggest players got to benefit from online ad market recovery.

Snap narrowly missed Wall Street’s expectations while its much bigger peers and world’s biggest advertisers, Alphabet and Meta Platforms scored far batter. Even Amazon.com Inc AMZN reported impressive online ad growth. Collectively, Meta, Alphabet and Amazon ad revenues grew more than $17 billion YoY in fourth quarteralone. Meta reported its ad revenue rose 23.8% YoY to $38.7 billion. Alphabet reported its ad revenue rose 11% YoYto $65.52 billion. Amazon reported its ad services grew at an impressive rate of 26.8% YoY to $14.65 billion primarily due to sponsored ads.

Fourth Quarter Highlights

For the quarter that ended on December 31st, Snap reported that sales rose 5% YoY to $1.36 billion which was below $1.38 billion that Wall Street expected. However, its net losses narrowed from $288 million to $248 million. 

Disappointing monetization despite solid user growth.

Snap reported better than anticipated sales growth but less optimistic sales conversion rates. Although Snap had 414 million daily active users which translate to a 10% YoY growth and sequential increase of 2%, average revenue per user (ARPU) dropped significantly from $3.47 made during last year’s comparable quarter to $3.20, clearly showing that revenue performance fell short.

Mixed guidance made Wall Street concerned about the sales makeup.

Snap expects DAUs to increase to 420 million in the first quarter, but ARPU is expected to fall short again. Snap guided for revenue growth between 11% and 15% which implies revenue in the range between $1.095 billion and $1.135 billion.

Snap and Pinterest have a different online ad narrative compared to Meta.

Last week, Pinterest PINS showed it is under monetized across the board. Pinterest reported revenue rose 12% but $981 million came short of LSEG’s estimate of $991 million. Along with the disappointing revenue, Pinterest also issued a weaker than expected guidance. In response, Pinterest turned to Google for help to get monetization done right, along with its existing Amazon partnership. Therefore, with Pinterest and Snap on one side, and Meta and Google on the other one, it is obvious that only the world’s biggest players got to benefit from the ad market rebound while smaller players still grapple with the consequences of the slowdown.

Snap ended 2023 with 7 million premium subscribers who pay for its Snapchat+ and it will now focus its efforts on growing users and deepening engagement in ‘monetizable’ markets that include North America and Europe.

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