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Snap's Revenue Dips Amidst Ad Market Challenges, Shares Tumble by 30%
Ticker Tea
February 07, 2024
📝 SUMMARY: Snap Inc. ($SNAP), the parent of the popular Snapchat app, faced a severe market setback with its shares plummeting over 30% in late trading, triggered by weaker-than-expected revenue in the crucial holiday quarter. The company reported a modest 5% increase in fourth-quarter revenue, reaching $1.36 billion but falling short of analysts' expectations of $1.38 billion. For the entire year, Snap’s sales growth remained stagnant, indicating a challenging operational environment.
CEO Evan Spiegel has steered the company through extensive restructuring over the last two years, involving job cuts and terminating non-profitable projects. The Santa Monica-based company announced a further 10% reduction in its workforce this year, emphasizing the need for efficiency and in-person collaboration. Despite these measures, Snap’s projected loss in adjusted EBITDA of $55 million to $95 million in the current period far exceeds analysts' expectations of a $33 million loss.
Snap's primary revenue source remains social media advertising, a sector where it faces stiff competition from larger players like Meta Platforms Inc. ($META). Despite efforts to diversify revenue streams, including enhancing ad targeting and direct-response advertising, Snap continues to struggle against tech giants.
The company's challenges were compounded by Apple Inc.’s ($AAPL) 2021 privacy changes, which hindered ad tracking on iPhones. While Meta has recovered strongly, Snap is still grappling with the aftermath. Additionally, geopolitical tensions, particularly the conflict in the Middle East, further impacted Snap’s revenue, shaving off about 2 percentage points of growth in the fourth quarter.
In contrast to its struggles in advertising, Snap's subscription service, Snapchat+, has seen success with 7 million paying users and an annual revenue run rate of $249 million. However, efforts like augmented reality offerings for retailers have not met expectations and were discontinued.
Snapchat reported 414 million daily active users in the fourth quarter, with a focus shift towards user growth and engagement in monetizable geographies. The company forecasts first-quarter revenue of $1.10 billion to $1.14 billion, aligning with analysts' estimates.
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