Shares of Snap Inc. slid in after-hours trade Tuesday after the social-media platform forecast third-quarter sales that were below expectations, amid concerns about a wobbly digital advertising backdrop and the company’s spending push to improve the way people interact and advertise when they log on.
Snap
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said it expects third-quarter revenue of $1.07 billion to $1.13 billion. The midpoint of that range was below FactSet estimates for $1.13 billion.
Shares tumbled 18.4% after hours on Tuesday.
“From a revenue perspective, our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited,” executives said in Snap’s earnings release.
Like other social-media platforms, Snap has struggled with a slowdown in the digital ad market, amid advertiser wariness of a recession. Snap has also faced competition from the likes of Tiktok and Instagram and Facebook parent Meta Platforms Inc.
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Snap has invested heavily strengthening its advertising platform, to serve users with more relevant ads and bring more impact to the businesses trying to advertise. It has also been spending to boost user engagement. Management, during Snap’s earnings call on Tuesday, said it would likely make “a further step up in investment here in Q3” to accelerate the progress being made on those efforts.
Executives said during the earnings call that engagement with Snapchat friend stories in the U.S. had started to fall more slowly, with viewership trending better than they had forecast. And they said time spent watching Spotlight — a part of the site that helps users explore and discover content — more than tripled year over year.
JPMorgan analysts, in a note earlier this month, said they continued to monitor Snap’s “heightened infrastructure costs.” But they said that the digital ad market had “stabilized” in the second quarter and that advertisers weren’t feeling as cautious, despite worries over the state of the economy.
“That said, we continue to believe it will take multiple quarters of improved execution for many investors to get more comfortable with the story longer-term,” the analysts said.
For the second quarter, Snap reported a net loss of $377 million, or 24 cents a share, compared with $422 million, or 26 cents a share, in the same quarter last year. Revenue fell to $1.07 billion, compared with $1.11 billion in the prior-year quarter.
Analysts polled by FactSet expected Snap to report a per-share loss of 25 cents a share, on revenue of $1.05 billion.
Daily active users rose 14% year over year to 397 million.
Evan Spiegel, Snap’s chief executive, said during Tuesday’s call that despite the competition from larger social platforms, it still had some advantages — namely, communication with friends and family.
“We actually think providing this place for friends and family to communicate has only become more important as more and more platforms focus on public social-media-style features where people feel like they have to compete for popularity, compete for likes and comments,” Spiegel said.
“It’s never been more important to actually build deeper relationships with your friends and family,” he added.
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