Snap plunged 33% in the stock market after presenting the weakest growth in its history

Minus 33%. Wall Street’s opening Friday hurt Snap, the parent company of the Snapchat video messaging app. The market punished the announcement of its results for the second half, still below expectations, however low. In detail, Snap achieved the weakest growth since its IPO (in March 2017) with “only” 13% more advertising sales than in the second quarter of 2021. For comparison, the company made 4 points less growth than at the beginning of the pandemic, when advertising budgets decreased significantly. “We are not satisfied with what we have done, despite the difficulties associated with the current economic situation“Snap executives agreed in their letter to investors.

$422 million in net losses

In the words of its leaders, the financial results are “disappointsand below market expectations. But Snap set the stage earlier in May, shortly after its first quarter, when it announced it would miss its revenue targets because of the state of the online advertising market. Its price collapsed 47% to 12.50 dollars per share, before slowly rising to more than 16 dollars. It fell back to 10.70 dollars at the opening of Wall Street this Friday.

However, Snap made $1.1 billion in revenue between April and June and gained 18% of users compared to last year, to a total of 347 million. But it also showed a $422 million net loss, 178% more than last year, although it finally made its first profit in the last quarter of 2021.

To compensate for this imbalance, the company plans to reduce its costs by slowing the pace of hiring, as will be done by almost all American technology companies, starting with Gafam. To lead by example, the company’s co-founders, Bobby Murphy and Evan Spiegel, will continue in their positions as chief technology officer and general manager until the end of 2026 for a symbolic $1 every year. A measure that is equally accompanied by the allocation of shares if the price exceeds the bar of 40 dollars in the next 10 years, which is more than double the current price. Snap has nearly 6,500 employees, 38% more than a year ago.

A cool title

To reach such a situation, Snap suffered a gathering of winds. On the one hand, the online advertising market, where it gets most of its turnovers, sticks out its tongue. Budgets are reduced in the face of increased costs and fears brought about by the macro-economic context: war in Ukraine, rampant inflation, energy and raw materials crisis, economic ghost… and therefore less expensive spaces which is sold.

And that’s not all: Snap is still struggling to adapt to the regulatory change that Apple imposed on its smartphones for more than a year, which requires application publishers to obtain the consent of users without yet to track their navigation for advertising targeting purposes. This change allows iPhone users (more than 50% of the US market and approximately 17% of the global market) to opt out of tracking, which undermines the personalization of advertising, by being its effectiveness and hence its cost.

On the other hand, Snap faces ever-increasing competition. TikTok broke all records of growth and began to strengthen the business model dominated by advertising. The two giants of the market, Google and Meta (Facebook, Instagram) are multiplying the initiatives on their side to maintain their quasi-duopoly status. “Snap is a small player in the digital advertising market. It represents less than 1% of global revenue according to our forecast for 2022, making it more sensitive to constraints than larger players such as Meta“, commented to AFP, Jasmine Enberg, Insider Intelligence analyst.

Hope to recover in the medium term?

To reassure investors, Snap executives are trying to project themselves. “the The steady growth of our community enhances our long-term opportunities, but our second quarter financial results do not reflect the extent of our ambition., they wrote in a note to investors. This unfortunate pass comes when Snap has finally found, for two years, its place in the highly competitive market of social networks. By betting on augmented reality and the famous 3D “filters” that transform photos, the company was able to win back users when it began to stagnate. But the advertising formats that accompany this technology, which are more experimental than usual, are the first to suffer the effects of budget cuts. It is here that the group can find reason for hope: without the chaos of online advertising, its situation would not be so bleak.

However, these results reveal the need to diversify for the social network. To begin to break away from its reliance on advertising, the company launched a subscription, Snapchat+, in June. For $3.99 per month, users get some cosmetic items for their profile, along with some minor options. The main attraction of the offer, at the moment, is to allow the subscriber to see who has viewed his publications. But it doesn’t remove ads.

After these poor results, the actions of Meta and Pinterest, which both rely on online advertising, fell by 5 and 10% respectively.