Snap Warns That “Rapid Transition” of Business Could Impact Earnings

Snap Warns That “Rapid Transition” of Business Could Impact Earnings | The Enterprise World

Snap Inc., the owner of Snapchat, surpassed Wall Street predictions in its second-quarter earnings report. The company’s revenues of $1.07 billion exceeded the expected $1.05 billion, and it also managed to reduce its quarterly losses to $377.3 million.

Despite this positive performance, there was a challenging year-over-year comparison, as revenues were down 4 percent compared to the same period last year. Additionally, a warning for the upcoming third quarter contributed to a drop in the share price during after-market hours.

Increasing its User Base

Snap Inc. reported an increase in its user base, with 397 million daily active users, and also noted that it now has over 4 million subscribers to Snapchat+.

Snapchat highlighted its revenue growth of 8 percent compared to the previous quarter, attributing it to changes made to its ad platform. However, the advertising segment also brings about significant uncertainty. In their Q3 guidance, the company stated that their advertising platform is undergoing rapid transitions to enhance performance, but they are facing limited visibility regarding advertising demand. Consequently, they expect the revenue growth to be between a 5 percent decrease and remaining flat when compared year-over-year.

During the earnings call, Snap CFO Derek Andersen noted that this was the first time in over a year that the company had provided guidance. He acknowledged the significance of this shift, stating that it reflects increased confidence in the direction of their business. In their investor letter, the executives presented their plan to achieve growth once again.

Snap earnings beat, revenue misses, despite strong daily active users

Priorities to achieve a higher rate of revenue growth

Snap CEO Evan Spiegel outlined three key priorities to achieve a higher rate of revenue growth. Firstly, the company aims to invest in its products to sustain community growth and foster deeper engagement. Secondly, they plan to heavily invest in their direct-response business to provide measurable returns on advertising spend for their partners. Lastly, Snap intends to explore new sources of revenue to diversify its overall growth, creating a more resilient business.

Spiegel emphasized the importance of turning the business around, citing the company’s reorganization in the previous year and their dedicated efforts to rebuild the advertising business. The company has been meticulous in assessing operating costs, investing only in areas necessary to achieve its strategic goals and to accelerate revenue growth. As a result, total adjusted operating expenses have decreased by 8 percent year-over-year, and headcount has been reduced by approximately 20 percent from its peak in mid-Q3 of 2022.

Did You like the post? Share it now: