Snap Stock Falls on Another Set of Weak Results

  • Stock Market Analysis

Shares of Snap (NYSE: SNAP ) are down sharply on Wednesday after the social media giant missed consensus estimates for Q4 2022 revenue. The company reported adjusted earnings per share (EPS) of 14 cents in the quarter, compared to analysts’ expectations of 11 cents per share.

Revenue came in at $1.30 billion in the three-month period, just below the $1.31 billion estimated by analysts. The social media company struggled to weather a difficult 2022 as a slowing global economy forced businesses to trim their digital ad budgets. Snap’s Q4 revenue was up slightly compared to a year ago.

The company reported 375 million Global Daily Active Users (DAUs) in the quarter, while analysts were looking for 375.3 million, according to StreetAccount. The average revenue per user stood at $3.47 in the quarter, missing the consensus projection of $3.49.

Another Disappointment for Snap

The results mark a third consecutive weaker-than-expected earnings report for Snap. This time, the social media company blamed the disappointing Q2 and Q3 reports on “a challenging year” characterized by “macroeconomic headwinds, platform policy changes, and increased competition.” On a full-year basis, Snap’s sales grew 12% to $4.6 billion in 2022.

The Santa Monica, California-based company said it would not issue guidance for the next quarter. However, the company said in the investor letter that its “internal forecast” expects a decline of 2% to 10% from the year-ago period.

The company said in the letter:

“On the monetization side, we anticipate that the operating environment will remain challenging, as we expect the headwinds we have faced over the past year to persist throughout Q1.”

Snap said its Snapchat+ service had more than 2 million paying subscribers as of Q4. Launched last summer, the service represents a subscription plan that provides users with access to additional, exclusive features such as longer story expiration, custom notification sounds, and camera color borders for $3.99 a month.

In the wake of last year’s struggles, Snap announced in August it would slash 20% of its staff, translating to more than 6,000 employees. The company also scrapped multiple projects in 2022, including its Snap Original premium shows and its flying selfie drone.

Bracing for More Regulatory Headwinds

Snap’s report marks a poor start to Q4 financial results season for ad-dependent businesses. Investors are set to gain additional insight into the market’s conditions later this week when the likes of Meta Platforms (NASDAQ: META ), Alphabet (NASDAQ: GOOGL ), and Amazon (NASDAQ: AMZN ) report their earnings.

Furthermore, there are no indications that 2023 will be any easier for U.S. social media companies as they brace for a series of new state and federal legal challenges with sweeping regulatory implications. Most U.S. state legislatures have proposed or adopted bills aimed at reforming how social media companies are moderating their content and protecting American users.

Meanwhile, the supreme court is set to hear as many as four significant cases against internet companies, targeting their liabilities in terrorist attack attempts and the alleged censorship of conservative viewpoints on their respective platforms, among other things. Two state and federal lawsuits announced earlier this month are targeting how social media apps and their algorithms are affecting the mental health of U.S. teenagers.

Several weeks ago, public schools in Seattle and the Kent school district took legal action against TikTok, Instagram, Facebook, YouTube, and Snapchat, citing the promotion of “harmful content to youth, such as pro-anorexia and eating disorder content.”

“We cannot ignore the mental health needs of our students and the role that social media companies play,” they added.

More recently, Utah governor Spencer Cox said the state plans to file a similar lawsuit, noting it will be geared towards protecting youth.

TikTok U.S. Ban a Tailwind?

At the same time, TikTok is bending over backward to stay in the U.S., where it boasts over 100 million users. The Chinese internet behemoth is facing a ban in the world’s biggest tech market. In addition to a ban on installing the app on federal and state government-owned devices, TikTok owner ByteDance could be entirely prohibited from operating in the US and see its app removed from Google and Apple (NASDAQ: AAPL ) app stores.

While in theory, it would not make using the TikTok app illegal for users, it would make it significantly more difficult for them to actually get the app. However, it remains uncertain whether the U.S. government will commit to making such a big step.

If it does, on the other hand, it would represent a similar approach to China which has banned all of the popular U.S. apps including Twitter, Instagram, YouTube, and Facebook.

In order to avoid the ban, ByteDance has spent millions of dollars to convince U.S. detractors that it does not take instructions from the Chinese government and that it is not providing it with U.S. user data. The social media company has also poured over $1 billion into “Project Texas,” an initiative aimed at rebuilding the TikTok app on U.S. servers in an effort to separate it from ByteDance and China.

Summary

Snap shares are moving lower this week after the social media company again disappointed investors. A softer-than-expected forecast pushed shares lower with Snap blaming changes to its advertising products that may prove to be “disruptive” to its business.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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