Snap Shares Plunge on Weak Sales and Profit Outlook

2 min read | August 02, 2024 12:00 AM EDT | By Team Kalkine Media

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Snap Shares Plunge on Weak Sales and Profit Outlook — Image source: shutterstock.com

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Snap Inc. experienced a significant drop in its share price during extended trading following the release of its second-quarter financial results, which missed expectations. The company's revenue and earnings forecast for the current period fell short of Wall Street's projections.

Snap (NYSE:SNAP) reported quarterly revenue of $1.24 billion, slightly below the anticipated $1.25 billion. For the upcoming quarter, Snap forecasts adjusted earnings before interest, taxes, depreciation, and amortization to be between $70 million and $100 million, missing the expected $110.5 million. Consequently, Snap's stock dropped 17% in after-hours trading.

In recent years, Snap has restructured its advertising strategy to emphasize direct response ads designed to prompt specific user actions, such as app downloads or product purchases. Previously, the company concentrated on brand awareness campaigns, which are less expensive to support but also generate lower revenue. This transition impacted revenue growth negatively for several quarters before a rebound began late last year.

The company attributed its recent revenue shortfall to a “weaker brand advertising environment” in some categories. However, Snap's subscription service, Snapchat+, which now has 11 million paying users, helped partially offset these challenges. This service, which features an AI-powered chatbot and costs $3.99 per month, had 9 million subscribers at the beginning of the year.

Snapchat's daily active user base averaged 432 million in the second quarter, marking a 9% increase from the previous year and surpassing forecasts. For the current quarter, Snap projects revenue between $1.34 billion and $1.38 billion, with the upper end of the range exceeding analyst estimates.

The company continues to face challenges in achieving profitability and is forecasting significant expenditures in infrastructure, including machine learning and artificial intelligence technologies. Snap indicated that these costs are expected to be substantial, with annual expenses projected to exceed half of the company's operating costs.

In the second quarter, Snap reported a net loss of $248.6 million, an improvement from the $377.3 million loss in the same period last year. Like other digital advertising firms such as Meta Platforms Inc. and Alphabet Inc.'s Google, Snap is incorporating AI to enhance ad targeting, content recommendations, and develop new products and services.

Snap is also applying AI to improve its video feed, Spotlight, which competes with TikTok. The company noted that its 850 million monthly users are spending 25% more time on Snapchat compared to the previous year, driven by Spotlight and Creator Stories.

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