High inflation and the weak economy are causing companies to put the brakes on costs when it comes to advertising expenditure. One of the victims is the popular photo app Snapchat. Their makers don’t even dare to make a forecast for the current quarter.
Photo app Snapchat’s business has been hit hard by weakness in the online advertising market. The otherwise rapid sales growth fell in the past quarter to a meager plus of 13 percent. That wasn’t good enough for investors: They let the stock fall by more than a quarter in after-hours trading. The turbulence was triggered by high inflation and the weak economy. This situation allows many companies to save on advertising spend – Snapchat’s main source of income. One is in an intensified battle for online advertising dollars with rivals like Tiktok, said the chief financial officer of the operating company Snap, Derek Andersen.
Snap posted its slowest growth since going public just over five years ago, with sales up 13 percent to $1.11 billion. In the first quarter, the growth rate was 38 percent, before that 50 or 60 percent were also common. The quarterly loss widened from just under $152 million a year earlier to a good $422 million.
Snap did not provide a forecast for the current quarter when the figures were presented after the US market closed. The company referred to the imponderables of the business environment. So far, the revenues in this quarter have only been at the level of the previous year. In response to the uncertainty, Snap wants to cut costs and significantly slow down job creation, among other things. Meanwhile, Snapchat remains popular: the number of daily active users increased from 332 to 347 million within three months. They also spent more time on the platform, as Andersen pointed out. The stock fell 26.79 percent in after-hours trading, just below the $12 mark. It started the year at more than $46.
Snapchat is also still struggling with Apple’s measures to better protect privacy on the iPhone. App operators must explicitly ask users for permission if they want to track their behavior across different applications. Many users rejected this – and that torpedoed numerous business models in online advertising. Snapchat is therefore less able to report advertisers on the success rate of their ads – while the company generally welcomed Apple’s measures.
Snapchat’s troubles make the upcoming release of Facebook and Google earnings more exciting. Both attract a large chunk of online ad spend, but Facebook in particular has faced competition from video app Tiktok in the past.
At the same time, Snap announced that co-founder and boss Evan Spiegel’s contract had been extended until January 1, 2027. Spiegel was then absent from the usual conference call with analysts. Snapchat originally got its start with the ability to post photos that will disappear on their own. In the meantime, however, the company is relying on the combination of digital effects with the real world on a large scale. These can be gimmicks like virtual masks in a video – or the opportunity to “try on” fashion and cosmetics on the mobile phone display. In the long term, Snap sees the greatest growth opportunities in this so-called augmented reality (AR), stressed top manager Jeremi Gorman.
