Snap Inc.’s life as a high-growth young tech stock is over, and its peers are about to show how much of that change can be attributed to Snapchat.
“Our recent discussions with our partners indicate that ad demand hasn’t really improved, but hasn’t deteriorated significantly either,” Evan Spiegel, co-founder and chief executive officer of Snap, told analysts when asked about headwinds and the broader macroeconomic environment.
Brand advertising, one of Snap’s biggest sources of revenue, was “significantly reduced” during the quarter, and advertising partners “are very cautious about managing their spend so they can react quickly to changes in the environment,” Spiegel added. He also noted that Snap’s direct response business grew during the quarter.
Snap’s shares fell 15% in after-hours trading, while both Meta META, +1.30%, and Google parent Alphabet GOOG, +1.96%, GOOGL, +1.96% slid, but then recovered easily recovered. The entire internet sector was hit threefold by Apple Inc.’s AAPL, +0.90% iOS privacy changes, competition from TikTok and advertisers looking to cut spending.
However, Snapchat’s ads business could be particularly ill-suited to the current environment. LightShed Partners analyst Rich Greenfeld claims that Spiegel’s comments on direct-response ads actually bode well for Meta, which he thinks will show its earning power this year as Snap and others struggle.
Spiegel has been ahead of its peers in laying off employees, announcing a 20 percent cut last summer that is virtually complete. Now, with revenue growth trending down, Spiegel is focusing on every earnings metric he can find — after consecutive years of managing adjusted net income through the magic of stock compensation, he believes he has “a way to adjust.” -Ebitda Break-Even in Q1” despite decline in sales.
However, Snap ended 2022 with negative free cash flow. Google and Facebook are set to put big bucks and earnings on the table with their reports this week, despite concerns about revenue growth. That’ll show just how big the gap is with Snap, which will have a much harder time grappling with TikTok and the rest of the industry’s woes, especially when forecasting around 2% sequential user growth.
“It appears investors will be asking more about growth than they will see, at least in the short term.” Scott Kessler, an analyst at Third Bridge wrote in an email about Snap.
With no growth to add to no voting rights for investors and only fake earnings, there’s little to like about Snap stock, which is slipping back into the single digits after selling for $17 at the IPO and $80 in 2021. Assessing online advertising The industry should wait for the bigger players to come forward.