Snap, the maker of Snapchat, reported its slowest quarterly growth ever and a larger financial loss on Thursday, while refusing to forecast its future performance due to “uncertainties related to the business environment.”
Revenue was $1.11 billion for the second quarter, up 13 percent from a year earlier. Snap’s growth was slower than at the start of the pandemic, when it reported a 17 percent increase in revenue. The company had said in May that it did not expect to meet its revenue targets for the quarter due to challenging economic conditions. The net loss was $422 million, much more than the loss of $152 million a year earlier, as the company’s expenses increased nearly 29 percent.
Snap added that sales in the current quarter were “roughly flat” from a year ago and that it would “significantly reduce” its hiring rate. In response, the stock plunged more than 25 percent in after-hours trading on Thursday, after closing at $16.35.
The only bright spot was user growth. Snap said the number of daily active users rose 18 percent in the second quarter to 347 million, above the 343 million Wall Street analysts had forecast.
Snap CEO Evan Spiegel acknowledged that user growth was not enough. “While the continued growth of our community enhances long-term opportunities for our business, our financial results (for the quarter) do not reflect our ambition,” he said in a statement.
Snap has been plagued by rising inflation, a slowing economy and industry changes that have hurt advertising activity. Last year, Apple changed its privacy settings to allow users to opt out of being tracked by apps, making it more difficult for social media companies to place targeted ads.
Snap has regularly forecast its financial performance. By not doing so this time, the company is mimicking others who have decided to say less during a period of macroeconomic uncertainty. For example, Apple stopped providing financial guidance early in the pandemic. Twitter, which is engaged in a legal battle with Elon Musk over his $44 billion acquisition of the company, has also not offered any financial guidance.
In an earnings call, Derek Andersen, Snap’s chief financial officer, said digital advertising, which generates the majority of the company’s revenue, has been the easiest for advertisers to pause during times of economic hardship. That happened in the second quarter for Snap, he said.
Digital advertising cuts could be exacerbated by Snap’s younger audience, which has less purchasing power, said Brent Thill, an equity analyst at Jefferies.
“The biggest factor is the downturn in the economy,” said Mr. Thill. “It’s just incredible how the environment has changed. Every possible headwind is hitting them now.”
