Snap: Bellwether online ad stock drops 16% in tough conditions
Although the online ad slump may be bottoming out says CEO Evan Spiegel
Snap shares dropped 16% on Tuesday after the company told investors it expects revenues to drop by between 2% and 10% in the current quarter, as it restructures to deal with the weak economy, Apple's privacy changes, and increased competition.
Snapchat's fourth-quarter revenues were flat compared with the same period last year at 1.3 billion. Bloomberg reports that Snap has seen a 7% decline in revenue in the current period compared with last year.
Because it announces its quarterly financial figure ahead of Meta and Alphabet, Snap, creator of the Snapchat social media app, is often seen as a bellwether for the online advertising industry and for social media.
Companies relying on online advertising as a primary source of revenue mostly had a tough 2022. Snap's stock dropped 81% last year, although it has since recovered some of that. Snap was also one of the first tech companies to announce mass layoffs, with 20% of its 6,000 employees made redundant in August.
In response to the worsening conditions, the company dropped a number of projects, saying it would be concentrating on those that added to the bottom line or increased user numbers.
The company has been successful in some of those areas, announcing that it has surpassed 2 million subscribers to its paid-for Snapchat+ service. Snapchat's overall user growth also grew substantially to 375 million daily users, a 17% increase year-on-year.
Along with others in the industry such as Meta, Snap is putting an increasing focus on using AI to serve ads to improve click-through rates.
CEO Evan Spiegel sought to calm the ship by saying the market may have bottomed out. While things were not improving, at least they were not getting any worse, he said.
"Our partners are just managing their spend very cautiously so they can react quickly to any changes in the environment," he told analysts on Tuesday.
The online ad industry is facing tough headwinds in the face of Apple's changes, which hit social apps on the iPhone, and increased regulation and privacy awareness around the world.
In a sign of the pressure, last week IAB CEO, David Cohen, called Apple, privacy advocates and politicians advocating for tighter rules for online data sharing "extremists".
A fuller picture of the state of online advertising will be available later this week when Meta and Alphabet announce their quarterly results.