Snap, despite continuing to grow its overall Snapchat user base and more than doubling the number of active advertisers in the second quarter of 2024, hit a speed bump with the earnings report and Q3 outlook — which missed Wall Street targets.
Snap shares were down more than 25% in early trading Friday to under $9.60/share on the earnings report, released after market close on Aug. 1.
Q2 revenue grew 16% year-over-year to $1.24 billion, “despite the impact of a weaker brand advertising environment for certain consumer discretionary verticals,” Snap said. Brand advertising sales were down 1% year-over-year. The top-line number was short of analyst consensus expectations of $1.25 billion. In addition, Snap said its expects Q3 revenue to be between $1.335 billion-$1.375 billion, also lower than Wall Street forecasts. Snap narrowed its Q2 net loss to $249 million (compared with $377 million in the prior year), in line with expectations.
The earnings report led analysts to question whether Snap has the wherewithal to compete against bigger players like Meta, YouTube and TikTok.
“In the case of Snap, it is hard to see how impression and monetization growth can scale long-term given the AI-fueled world domination plans of Meta, YouTube and TikTok,” MoffettNathanson principal analyst Michael Nathanson wrote in a research note Friday. (That said, Snap could benefit if the U.S. government enacts a ban on TikTok over the app’s ownership by Chinese internet giant ByteDance.)
Snap highlighted bright spots from Q2. Its Snapchat+ subscription service added 2 million paid users (to reach 11 million) putting the business on a quarterly revenue run rate of more than $100 million. The company touted reaching “an important milestone” of more than 850 million monthly active users, “on the path to our goal of 1 billion MAU.” Snapchat’s North American daily active users declined by 1 million in the quarter (to 100 million), but that was offset by growth in Europe and the rest of the world.
Evan Spiegel, co-founder and CEO of Snap, said in announcing the earnings, “We continued to scale our advertising platform with active advertisers more than doubling year-over-year.” He added that at the Snap Partner Summit on Sept. 17, it will “announce new updates to our service.”
According to Nathanson, Snap’s advertising prospects can be improved “if they can continue to shift away from brand dollars to performance advertising. While this has been the story since the start of time, current ad performance and the high bar set by Meta show that it is indeed possible to engineer a technology solution to improve advertising targeting and performance.” The analyst maintained a neutral rating on the stock and a $8/share 12-month price target.
Upbeat signals for Snap from its Q2 report were that time spent globally on Snapchat grew 25% year-over-year (ahead of daily active user growth of 9%) and that direct response advertising spending grew 16%, outpacing total ad revenue growth, UBS analyst Stephen Ju wrote in a note Friday.
The earnings report “does set the company on a timeline to start reporting better revenue growth as the mix of [direct response] continues to index higher versus brand,” according to Ju. “With that in mind, we see the risk/reward as being balanced given the potential for ongoing share loss,” resulting in UBS lowering its 12-month price target on Snap from $16 to $12 per share. Ju maintained his neutral rating “pending further signals around either recapturing of lost brand share or incremental acceleration in DR.”
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