Snap Inc.’s life as a young, high-growth tech stock is over, and its rivals are about to show just how much this change means to Snapchat.
“Based on our recent conversations with our partners, it appears that ad demand hasn’t really improved, but it hasn’t worsened significantly either,” said Snap co-founder and chief executive Evan. Spiegel, to analysts in response to a question about headwinds and the broader macro economy.
Brand advertising, one of Snap’s main sources of revenue, was “significantly reduced” in the quarter and ad partners are “just managing their spend very carefully so they can react quickly to any changes in the market.” environment,” added Spiegel. He also noted that Snap’s direct response business increased during the quarter.
Snap shares fell 15% in after-hours trading, while Meta META,
and Alphabet GOOG, parent of Google,
slipped but then recovered slightly. The entire internet industry suffered a triple whammy from Apple Inc.’s AAPL,
iOS privacy changes, competition from TikTok, and advertisers looking to cut spending.
However, Snapchat’s advertising business could be particularly ill-suited to the current environment. LightShed Partners analyst Rich Greenfeld argues that Spiegel’s comments on direct-response ads actually bode well for Meta, which he says will show its earning power this year as Snap and others struggle.
Spiegel was ahead of rivals in laying off employees, announcing a 20% cut last summer that has effectively ended. Now, as revenue growth wanes, Spiegel is focusing on whatever measure of profit he can find – having managed adjusted net income through the magic of equity compensation for years in a row, he thinks it has “a path to adjusted -EBITDA at breakeven in Q1” despite lower revenue.
Snap, however, ended 2022 with negative free cash flow. Google and Facebook are poised to drop a lot of money and revenue on the table with their reports this week, even with revenue growth issues. This will show how big of a gap there is with Snap, which will have a much harder time dealing with TikTok and the rest of the industry’s troubles, especially while predicting around 2% sequential user growth.
“It looks like growth is something investors will ask for more than they see, at least in the short term,” Scott Kesler, a Third Bridge analyst, wrote in an email about Snap.
With no non-voting growth for investors and only fake earnings, there’s little to like about Snap shares, which are back in mid-single digits after selling for $17 in the stock market. IPO and hit $80 in 2021. Judgment on the online announcement the industry should wait for the biggest players to report.