Snap Inc (SNAP) shares plunged lower Friday after the messaging app maker posted its slowest revenue growth on record, while declining to offer near-term profit guidance, as the messaging app maker took a big hit to its ad-based business.
The Snapchat messaging app maker posted a narrower-than-expected second quarter loss of 2 cents per share, but noted the revenues rose only 13% to $1.11 billion, a figure that missed Street forecasts. Snap added the current quarter revenues are essentially flat, citing the broader macro slowdown and the impact of Apple Inc.'s (AAPL) privacy changes, which prevent user tracking, on its ad business.
Active users rose 18% from last year to 347 million, Snap said, but competition is also intensifying for its main demographic -- younger users -- as ByteDance-owned TikTok continues to take market share in the U.S. and elsewhere.
"We face a number of very large and very sophisticated competitors (and) we're seeing the overall advertising pie grow at a slower rate amid the macro headwinds," CFO Derek Anderson told investors on a conference call late Thursday. "So as competition, whether it's with TikTok or any of the other very large, sophisticated players in this space, has only intensified and it's hard to disentangle the numerous factors here impacting what's clearly a headwind driving deceleration in our business."
"The primary issue here is about how demand is materializing," he added. "And so we talked a little extensively about this already, but we've definitely seen the deceleration in demand with the platform changes, then all of the macro issues that have compounded on top of that, which are really a significant factor at this point, and then the competition play into it."
Snap shares were marked 38.7% lower in early afternoon trading Fridayto change hands at $10.02 each, a move that would wipe more than $10 billion from the company's market value and pull the stock to a two-year low.
The warning trimmed hundreds of millions in value from social media stocks, including big tech giants Google (GOOGL) and Meta Platforms (META), while reminding investors of the challenges that continue to face most companies over the second half of the year as supply chains remain tangled, input costs continue to surge and demand begin to wane.
Google parent Alphabet shares were marked 6.23% lower at $107.22 while Meta Platforms fell 47.7% to $169.12, extending the stock's year-to-date decline to around 50%.
"With inflationary pressures impacting the health of consumers (especially for Snap’s younger users, who have less consumer discretionary spend) and businesses becoming more conservative with their advertising, Snap experienced reduced advertiser demand across its ad platform," said JMP Securities analyst Andrew Boone.
"Additionally, Apple’s ATT changes–which were rolled out in 3Q21–continue to represent a headwind impacting both measurement and targeting," he added, but noted that Snap's market share among younger users, its AR and innovation leadership and "multiples growth levers across Spotlight, Maps, and Games/Minis" could make the current pullback a buying opportunity ahead of return in revenue visibility.
