High inflation and a weak economy mean that companies are slowing down their advertising spending. One of the victims is the popular Snapchat photo app.
The weakness in the internet advertising market has hit the Snapchat photo app business hard. Otherwise, the rapid growth in sales dropped to a slight increase of 13 percent in the past quarter. This wasn’t enough for investors: they allowed stocks to drop by more than a quarter in Thursday’s after-hours trading.
The turmoil was caused by high inflation and a weak economy. This situation allows many companies to save on advertising expenses – Snapchat’s primary source of income. One is in a fierce battle for money for online advertising with rivals such as Tiktok, Snap CFO Derek Andersen said.
Snap saw the slowest growth since it went public just over five years ago, with sales climbing 13 percent to $ 1.11 billion. In the first quarter, the growth rate was 38 percent, previously 50 or 60 percent was also common. The quarterly loss increased from nearly $ 152 million a year earlier to a good $ 422 million.
Snap did not provide a forecast for the current quarter, as the data was released after the US market closed on Thursday. The company referred to the imponderables of the business environment. Until now, revenues in this quarter remained only at the level of the previous year.
Despite everything, it is very popular with users
In response to uncertainty, Snap wants, among others reduce costs and significantly slow down job creation. Meanwhile, Snapchat remains popular: Daily active users increased from 332 to 347 million in three months. They also spent more time on the platform, Andersen noted.
The shares fell 26.79 percent in after-hours trading, just below the $ 12 mark. The year started at over $ 46.
Snapchat is also still struggling with Apple’s measures to better protect privacy on the iPhone. App operators must explicitly ask users for permission if they want to track their behavior across different apps. Many users have rejected this, and it has torpedoed many business models in internet advertising. Snapchat is therefore less able to report to advertisers the success rate of their ads – while the company generally welcomed Apple’s measures.
What about Facebook and Google?
Snapchat’s troubles make the upcoming posting of earnings on Facebook and Google more exciting. Both attract a large chunk of online advertising spending, but Facebook in particular has faced competition from Tiktok’s video apps in the past.
At the same time, Snap announced that co-founder and CEO Evan Spiegel’s contract was extended to January 1, 2027. Spiegel was absent from the usual conference call with analysts at the time.
Snapchat originally started with the ability to post photos that will disappear on their own. In the meantime, however, the company focuses on combining digital effects with the real world on a large scale. These can be gimmicks like virtual masks in a movie – or being able to ‘try on’ fashion and cosmetics on the display of a mobile phone. In the longer term, Snap sees the greatest growth opportunities in what is known as Augmented Reality (AR), manager Jeremi Gorman emphasized. (dpa)