Snap Inc.’s disappointing quarterly results and forecast, combined with one repeated excuse, don’t add up when compared to stronger results from other companies also reliant on internet ads, like Meta Platforms and Alphabet.
On Tuesday, Snap
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reported a revenue miss for the fourth quarter, and gave a disappointing outlook for the first quarter, including a much wider Ebitda loss than Wall Street was expecting. Its shares plunged 32.4% in after-hours trading, with the news coming a day after Snap announced plans to cut another 10% of its staff
Wall Street analysts were also concerned about its slower growth rate, versus other companies dependent on internet ads. In the fourth quarter, Snap saw revenue growth of 5%, and in its investor letter, it said that “the onset of conflict in the Middle East was a headwind,” affecting 2 percentage points of revenue growth. Snap also said the Middle East was a headwind in its third quarter.
Snap’s forecast of revenue ranging from $1.095 billion to $1.135 billion for the first quarter implies revenue growth of 11% to 15% year over year.
By comparison, Meta said last week it expects first-quarter 2024 total revenue in the range of $34.5 billion to $37 billion, with growth ranging from 20.63% to 29.37%, versus first-quarter revenue of $28.6 billion a year ago.
Rich Greenfield, an analyst with LightShed Partners, asked Snap executives about Meta’s
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outlook for 30% revenue growth this quarter, its tremendous scale and whether Meta’s aggressive spending on machine learning and AI was a putting a limiting factor on Snap’s growth.
Also read: Meta’s killer stock rally adds $200 billion in market cap — a historic haul.
“We aren’t as large as some players, but I think there’s enormous opportunity for us to continue to grow business.” Snap co-founder and Chief Executive Evan Spiegel said, after touting Snap’s user base of 800 million. Spiegel noted that historically, Snap has been a “brand-focused ad business.”
Snap is now focused on more direct-response ads, which he described as a difficult transition for brand-oriented companies. “We’re certainly trying to play catch-up here on the direct-response side, but we are seeing evidence that that’s working,” he said.
The fourth quarter is usually heavier when it comes to brand advertising for Snap, said Jasmine Enberg, principal analyst at Insider Intelligence, in an email. “Brands are more risk-averse and thus likely to pause or slow spending in times of conflict or crises. Snap is also a smaller and less essential player for advertisers, so a brand pullback could be more noticeable there than on bigger platforms like Meta.”
She added that while Snap is still working to improve its direct-response ad business, it’s more difficult for it to mask its brand-advertising weakness. Slower spending due to the Middle East conflict is also a “reflection of larger problems within Snap’s ad business — lack of scale and sophistication compared to its rivals,” she said.
Benchmark analyst Mark Zgutowicz said in a Snap earnings preview note to clients on Monday that the company was still “competitive lacking,” in the DR-stack (direct-response software) and that he did not foresee sustainable revenue catalysts to value the shares higher.
That turned out to be a prescient comment, but investors now are stuck in a wait-and-see mode, hoping that Snap will turn it around as it tries to deal with a more competitive ad environment in the AI world, outgunned by bigger rivals like Meta and Alphabet.
This story originally appeared on Marketwatch
