Snap Inc.'s weak third-quarter (Q3) earnings announcement on Thursday, Oct. 21, is a presentation that the company's finances are deteriorating rapidly in 2022.
Social media investors highly anticipate such announcements, but this time, they might be worried as the company instead documented the lowest year-over-year revenue growth in its 11-year history, Gizmodo reported.
Snap also allegedly said that it did not anticipate any revenue increase in the fourth quarter, which sent the company's shares down by almost 30%.
Although a prolonged slowdown in digital advertising and the downstream consequences of Apple's App Tracking Transparency also played a role, Snap blamed increasing prices and the crisis in Ukraine for the dismal numbers.
Snap's Optimism Despite Continued Poor Performance
Compared to the previous year, Snap's sales increased by just 6%, yet the social media firm still had a net loss of $359 million. Despite the setback, Snap was still able to increase its daily active user base by roughly 19%.
Snap acknowledged in its letter to investors that it is still facing severe challenges. Still, it declared that it sees a path out of this predicament by continuing to expand and engage its core group of users.
"Historically, we have found that advertising revenues follow engagement, so while we are facing near-term headwinds to our revenue growth," the company said in the letter. "We remain optimistic about our long-term opportunity based on the growth of our community and engagement."
The profits report was released almost two months after the company decided to let go of more than 1,000 of its workers, representing approximately 20% of its total staff. Prior to that, the firm stunned investors by reporting the lowest-ever quarterly revenue increase in its six years as a public company.
Nevertheless, Snap has stated its dissatisfaction with the sales results that it is presenting to the investors, regardless of the challenges it is now experiencing.
The Challenge in the Ad-Dependent Social Media Sector
Although Snap attempted to lay the blame for its current difficulties on inflation and geopolitical tensions, decreases in digital advertising income might offer a more existential challenge for the firm. This goes to other companies like them that depend on ad revenues to sustain their operations.
For instance, the valuation of Meta, which was previously held up as a model of unstoppable expansion, dropped by $250 billion in a single day earlier this year as a direct result of disappointing advertising growth rates.
In a broader sense, the Media investment company GroupM forecasted that ad revenue growth throughout the whole sector would be only 8.4% in 2022, a considerable drop from the increase of 24.3% in the previous year.
The ad-reliant social media sector was rocked to its core by Snap's disappointing performance during the Q3. Following the news release, the share prices of companies such as Meta, Alphabet, and Pinterest, which all generate revenue via digital advertising, each saw a decrease.
According to estimates provided by Reuters, the stock sell-off that took place during that period may have resulted in the loss of almost $4 billion for those social media businesses.
This article is owned by Tech Times
Written by Trisha Kae Andrada
