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Snapchat’s sales growth disappeared, and so is the stock

MarketWatch logo MarketWatch 2/1/2023 Jon Swartz
© MarketWatch photo illustration/iStockphoto

Snap Inc.’s revenue growth hit a new low to end 2022, and executives said January has produced worse results, sending shares down 15% in after-hours trading.

In a potential barometer of what’s to come from advertising-dependent internet companies, Snap on Tuesday posted a loss of more than a quarter-billion dollars in the holiday quarter and revenue that was roughly flat from a year ago. In a letter to shareholders, executives said that revenue was down 7% through the first month of the year, leading to internal projections of a 2% to 10% sales decline in the first quarter.

“It seems our advertisers are really watching their spending,” Snap Chief Executive Evan Spiegel said during a brief conference call with analysts late Tuesday.

Snap shares shed about 15% in after-hours trading on the news, which would wipe away more than $2.5 billion in market capitalization from Snapchat’s parent company. It also rattled investors in Meta Platforms Inc. and Alphabet Inc.’s Google, both of which report financial results later this week, with their shares dipping in late trading.

Snapchat’s parent company reported fourth-quarter revenue of $1.3 billion, flat with a year ago, the worst year-over-year revenue growth Snap has ever reported. The company said it lost $288.5 million, or 18 cents a share, compared with earnings of a penny a share last year. Analysts polled by FactSet had predicted revenue of $1.3 billion and a loss of 11 cents a share.

“Over the past year, we’ve noted a number of factors that have impacted our revenue growth, including macroeconomic headwinds, platform policy changes, and increased competition,” Snap said in a letter to investors. “These challenges persisted throughout Q4 and combined to create a difficult operating environment. Overall, revenue generation in Q4 materialized largely as expected, with revenue growth flat year-over-year.”

Snap executives warned last year that marketers were lowering their budgets amid economic uncertainty, after they laid off roughly 20% of employees in the summer, months before other tech companies began cutting. But Snapchat’s triple-digit revenue growth has now disappeared in a very fast descent.

“The deterioration in Snap’s business has been alarming, with rev growth decelerating for 7 straight quarters to [an estimated] ~0% in Q4 (from 116% in Q2’21),” Jefferies analyst James Heaney wrote in a note to clients this week.

The downturn in digital advertising as well as the threat from TikTok has contributed mightily to layoffs at Snap, Meta and Google. Snap disclosed Tuesday that its headcount is now 20% lower than its peak, and executives said they hope to break even on an adjusted-Ebitda basis for the quarter.

Shares of Snap have sunk 66% over the past 12 months; the broader S&P 500 index is down 10% in the past year.


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