Photo messaging app owner Snap on Tuesday gave weaker third-quarter guidance than analysts had expected as it works to compete with tech giants for advertising dollars, sending its shares down 18 percent.
The company's Snapchat app has attracted hundreds of
millions of users thanks to its lighthearted photo filters and new AI-powered
chatbot that can answer questions. But it has struggled to consistently grow
revenue and catch up to rivals like Facebook-owner Meta Platforms that reach a
much larger audience, prompting questions from analysts and investors about its
strategy.
Santa Monica, California-based Snap said it estimates
third-quarter revenue will be between $1.07 billion to $1.13 billion. Analysts
were expecting revenue of $1.13 billion, at the top end of the guidance range.
Similarly, Wall Street forecast 406.2 million users in the
third quarter, according to IBES data from Refinitiv, but Snap said it expects
between 405 million to 406 million daily active users.
Shares of Snap dropped 18 percent to $10.19 in after-market
trading following the results.
Snap's weak outlook "highlights concerns that
advertising money is not going to the smaller social media networks amid the
constrained economic environment," said Jesse Cohen, senior analyst at
Investing.com.
Earlier this year, the company updated its machine learning
model to serve more relevant promotions to users, which Snap said in the short
term caused a small number of its largest advertisers to see fewer
"actions," such as users tapping on ads than they did previously
Advertisers are beginning to see results from the changes,
which led to a more than 30 percent increase in "purchase-related
conversions" compared to the first quarter, Snap told investors.
The improvements also helped Snap grow the total number of
advertisers on its platform, though it is not yet enough to make up for the
lower ad demand from some larger brands, it added.
During a conference call with analysts, Snap's chief
financial officer Derek Andersen said the consumer packaged goods, restaurants,
and travel industries were strong, but advertisers in other sectors continued
to face economic challenges.
Still, the tech company beat revenue and user estimates for
the second quarter.
Revenue for the quarter ending June 30 was $1.07 billion,
beating analyst expectations of $1.05 billion, according to Refinitiv data.
Daily active users on Snapchat rose 14 percent
year-over-year to 397 million, beating Wall Street expectations of 394.8
million.
More than 150 million people have also sent more than 10 billion
messages to My AI, the ChatGPT-powered bot Snap launched in February. Those
conversations will help Snap learn more about user interests and lead to more
relevant ads, the company said, adding that it is testing sponsored links in My
AI's responses.
Snap's net loss was $377 million during the second quarter, narrowing from a
net loss of $422 million the previous year.
Several analysts questioned Snap's plan to spend more on
infrastructure, which the company said would cost between 79 cents to 84 cents
per daily active user in the third quarter, up from 70 cents in the second
quarter. Andersen said the spending aimed to improve its ads platform and grow
user engagement with content. © Reuters