Snap shares plunge more than 17% on weak forecast

Snap Shares fell more than 16% after the company announced guidance for its current quarter that fell short of analysts’ expectations.

Here’s how the company did it:

• Loss per share: 2 cents loss against 4 cents loss expected by analysts, according to Refinitiv.
• Income: $1.07 billion vs $1.05 billion expected, according to Refinitiv.
• Global Daily Active Users (DAU): 397 million against 394.9 million expected, according to StreetAccount.
• Average revenue per user: $2.69 vs. $2.68 expected, according to StreetAccount.

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Snap released second-quarter results that beat analysts’ estimates but provided a weaker-than-expected forecast for the current period.

The company’s overall sales in the second quarter fell 4% from the $1.11 billion recorded a year earlier during the same period. This is the second consecutive period of year-on-year revenue decline.

The social messaging business managed to narrow its net loss by 11% year-over-year to $377.3 million in the second quarter, which ended June 30, 2023.

Snap also released third quarter financial guidance which it said is “based on the assumption” that the company’s daily active users will reach between 405 and 406 million. As part of its forecast, Snap forecasts between $1.07 billion and $1.13 billion in total sales for the third quarter, which it says implies “negative growth of 5% to flat year-over-year growth.”

Analysts predicted that Snap would register sales of $1.13 billion in the third quarter, as well as 406 million daily active users during the same period.

Last quarter, Snap did not provide official Q2 guidance, instead disclose an “internal forecast” for revenue estimates during the period.

Like many tech companies, Snap has launched a major cost reduction plan in 2022, this included laying off 20% of the company’s total workforce of 6,400 at the time. As a result of those cost cuts, Snap wrote in a letter to investors on Tuesday that its operating expenses fell 8% year-over-year in the second quarter, to $615 million. As of June 30, 2023, the company had 5,286 full-time workers, according to the letter.

“We’re excited about the progress we’ve made in delivering increased ROI to our advertising partners, growing our community to 397 million daily active users, and reaching over 4 million Snapchat+ subscribers,” Snap CEO Evan Spiegel said in a statement.

Snap announced its Snapchat+ subscription plan in June 2022, throw as a means for users to access exclusive features and updates for a monthly fee of $3.99.

Analysts are watching Snap earnings for any signs of recovery in the digital advertising market, which may see a modest rebound, according to multiple industry surveys. A recent William Blair investigationfor example, noted that while the overall online advertising market “is still weak”, the overall macroeconomy is “not as volatile, resulting in a slow rebound in digital ad spending”.

Meta announces its second quarter results tomorrow, following first quarter increase in turnover after three consecutive periods of decline. At the time, Meta’s chief financial officer, Susan Li, said that Meta would always do the experience “a volatile macro environment” for the rest of the year, in addition to a “difficult regulatory environment”.

Snap executives will address analysts and investors on an earnings call beginning at 5:30 p.m. ET.

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