Snap Reports User Growth but Big Losses in Q2

Snap, the maker of Snapchat, reported its slowest quarterly growth rate and wider financial losses on Thursday, but declined to forecast its future results due to “operating environment uncertainty.”

Revenue in the second quarter was $1.11 billion, up 13 percent from a year earlier. Snap’s growth was lower than at the beginning of the pandemic, when the company reported a 17 percent increase in revenue. The company said in May that it did not expect to hit its revenue targets for the quarter due to difficult economic conditions. Its net loss was $422 million, much larger than its $152 million loss a year earlier, as the company’s expenses increased nearly 29 percent.

Snap added that revenue for the current quarter was “roughly flat” from last year and that it will “substantially reduce” hiring rates. In response, its shares fell more than 25 percent after Thursday’s close after closing at $16.35.

The only bright spot was the growth in the number of users. Snap said its daily active users increased 18 percent to 347 million in the second quarter, up from the 343 million Wall Street analysts had forecast.

Evan Spiegel, CEO of Snap, acknowledged that user growth is not enough. “While the continued growth of our community increases long-term opportunities for our business, our (quarterly) financial results do not reflect our ambitions,” the statement said.

Snap has been hit by rising inflation, a slowing economy, and changes in the industry that have hurt its advertising business. Last year, Apple has changed the privacy settings to enable users to opt out of being tracked by apps, making it harder for social media companies to serve targeted ads.

Snap regularly forecasts its financial performance. By refusing to do so this time, the company is emulating others who have chosen to talk less during a period of macroeconomic uncertainty. Apple, for example, stopped providing financial projections early in the pandemic. Twitter, embroiled in a legal battle with Elon Musk over his $44 billion acquisition of the company, did not offer financial adviceor.

In an earnings call, Derek Andersen, Snap’s chief financial officer, said that digital advertising, which generates the majority of the company’s revenue, was easiest for advertisers to put on hold during times of economic hardship. According to him, it happened in the second quarter for Snap.

The decline in digital advertising could be exacerbated by Snap’s younger audience, which has less purchasing power, said Brent Till, an equity analyst at Jefferies.

“The biggest factor is the pullback in the economy,” he said. Till said. “It’s incredible how the environment has changed. Right now, any headwind is hitting them.”