Snap losses widen as advertisers slash spend in the face of economic pressures
Snap has underperformed financially in its second-quarter results, saying advertisers have cut spending on the platform to combat economic pressures.
The social media company fell short of its revenue predictions in its Q2 results
In its latest financial filing, the company said that daily active users (DAUs) has increased 18% year-on-year to 347 million. The results show that although revenue increased slightly by 13% to $1,111m over the previous year, the net loss increased dramatically. The company reported a net loss of $422m compared to only $152m the previous year. Worryingly for the company’s growth, DAUs in its key market of North America slowed to only 4%.
“While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition,” said Snap’s chief executive officer Evan Spiegel as its share price dropped 25%.
“We are evolving our business and strategy to reaccelerate revenue growth, including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our topline growth.”
Snap stated that overall “demand growth on our advertising platform has slowed significantly,” which it blamed on uncertainty in the financial markets in high-value verticals.
The accompanying letter to investors highlighted the company’s focus on augmented reality (AR) as a feature it expects to compensate for that advertising spend gap in the near future.
“We continue to see significant room to drive growth via our direct-response advertising platform because digital advertising provides a measurable return on spend. Even amid current headwinds, there are several verticals finding success at scale on our platform, and we believe they can serve as a blueprint as we prioritize our roadmaps to support our advertising partners,” it read.
It states that a key highlight of the year was the rollout of its augmented reality (AR) Image Processing tool, in addition to individual executions such as the Snap Ramadan Mall, which partnered with brands including L’Oréal, Ikea and Samsung. The report as a whole makes a point of naming the brands that have taken advantage of its AR features, which include Dior, Gucci and Louis Vuitton.
Last year David Norris, European head of creative strategy at Snap Inc, said that the appeal for brands was the 200 million plus users who engaged with AR on a daily basis: “What we saw was this incredible lift in terms of purchasing ... We know that the Snapchat generation is supremely confident in terms of purchasing through mobile. It’s not a big leap. But still, when you see the numbers that came back from this campaign and that six in every 10 people who engaged in the lens bought the product ... that’s the behavior we’re looking at and talking about here in terms of scale.”
The report also notes that the company is rolling out its paid subscription service Snapchat+. That option allows subscribers to access exclusive and pre-release features such as Snapchat for Web. Currently, the feature is only available in the US, UK and Canada, suggesting that the company sees headroom in the growth of subscription revenue.
In spite of the lackluster financial results, the company did report growth in some of its key KPIs. The total time spent watching Snapchat Spotlight content grew 59%, while the DAUs for over-25s engaging with its shows and publisher content grew by 40%. It also suggests that there will be more such exclusive content in the near future, with a new slate of Snap Originals from Simone Biles, Indigenous creators Marika Sila and Kairyn Potts, and Dixie and Charli D’Amelio among others.