Snap shares have taken a considerable hit, with a significantly disappointing forecast for the September quarter. This latest development highlights the company’s ongoing struggle to expand while continuing to invest in machine learning, AI, and other emerging technologies.
Q2 Performance and User Growth
In the second quarter, the social media company reported a revenue of $1.068 billion, a 4% decrease from the previous year. However, this figure aligns with the Street consensus forecast of $1.05 billion. Adjusted earnings placed Snap’s loss at 2 cents per share, beating expectations of a 4-cent loss per share. On a GAAP basis, Snap incurred a loss of 24 cents per share during the quarter.
Snap’s daily active user count has now reached 397 million, surpassing expectations with a 14% increase.
Bleak Outlook Paints Red Picture
Unfortunately, Snap’s outlook fails to meet expectations by a large margin, causing the stock to plummet by 18% to $10.27 in late trading.
For the third quarter, Snap projects revenue ranging from $1.07 billion to $1.13 billion, reflecting either no change or a decrease of up to 5% compared to the same period last year. However, even the midpoint of this range slightly falls short of the Street consensus at $1.13 billion.
The forecast becomes even more concerning as Snap anticipates an adjusted EBITDA loss between $50 million and $100 million for the quarter. This signifies an increase in losses compared to the $38 billion loss incurred in the June quarter – a stark contrast to the anticipated loss of just $2.4 million.
Rising costs are putting additional pressure on the company as it strives to identify new avenues for growth.
Snap’s Ongoing Investments in Infrastructure
Snap, the parent company of Snapchat, has revealed that it expects its infrastructure costs per daily active user to be in the range of 79 to 84 cents for the current quarter. These costs reflect Snap’s ongoing investments in areas such as machine learning, AI, and other infrastructure. In comparison, the infrastructure costs per daily active user were 70 cents in Q2, up from 58 cents a year earlier, and 59 cents in Q1.
Focus on Sustainable Growth and Revenue
In a letter to shareholders, Snap emphasized its dedication to achieving a higher rate of revenue growth. To accomplish this goal, the company is placing its focus on investing in products that support community growth and foster deeper engagement among users. Additionally, Snap intends to invest in its direct-response ad business while seeking out new sources of revenue.
Streamlining Operations
Snap’s efforts to improve its financial performance include a notable reduction in operating expenses. These expenses have decreased by 8% compared to the previous year, alongside a 20% decrease in headcount since last year’s third quarter.
Revenue Growth Challenges
Snap acknowledged that revenue growth has faced challenges during the June quarter. The company attributed this partly to recent changes made in its advertising platform. Specifically, brand advertising experienced an 8% decline, while direct-response ads saw a 7% decrease. Moreover, the adjusted gross margin dipped by seven percentage points in the quarter, settling at 54%.
Snap’s commitment to investing in infrastructure and refining its advertising strategies reflects its determination to foster sustainable growth and revenue generation. Despite facing challenges, Snap remains optimistic about its future prospects.