With revenue growth at its lowest pace in six years and digital advertising struggling, can Snap resume growth this year?

Focus

• 1Snap's fourth-quarter revenue fell short of expectations, but earnings were stronger than expected;
• 2Snap had a tough year in 2022 as the economic slowdown caused many companies to cut their digital advertising budgets;
• 3Snap declined to provide guidance for the third straight quarter, though the company said it "internally forecasted" revenue to decline 2 to 10 percent year-over-year.

Tencent Technology News News on February 1, after the close of U.S. stocks on Tuesday, local time, social media company Snap announced its fourth quarter 2022 earnings, causing the stock to plunge more than 14% in after-hours trading due to its revenue falling below analysts' expectations.

According to the financial report, Snap's fourth-quarter revenue was $1.3 billion, basically unchanged from the same period last year, slightly lower than market expectations of $1.31 billion; net loss was $288.5 million, a diluted loss per share of $0.18; adjusted net profit was $233.3 million, down 29% year-on-year; Adjusted earnings per share were $0.14, above market expectations of $0.11 but down from $0.22 in the year-ago quarter. In the fourth quarter, Snap's daily active users grew 17% year-over-year to 375 million, slightly above market expectations of 375.3 million. The average revenue per user was $3.47, lower than the expected $3.49.

It was Snap's first quarter of little revenue growth since its inception, the slowest increase in nearly six years since it went public, and the third consecutive release of earnings results that disappointed investors. The day after the company released its third-quarter earnings report in October, its shares fell 28 percent as revenue fell short of expectations. After reporting second-quarter earnings in July, the company's shares fell 39 percent as its revenue and net profit fell short of expectations.

Snap warned that the company's revenue could decline in the first quarter of 2023 after revenue growth stagnated in the final three months of last year, suggesting that social media companies have had to navigate a tough market environment. Snap CEO Evan Spiegel said in a statement: "We continue to face significant headwinds as we seek to accelerate revenue growth."

Snap's fourth-quarter revenue increased slightly from the year-ago quarter. Like other social media peers Meta and Twitter, Snap had a tough year in 2022 as the economic slowdown led businesses to slash their digital advertising budgets, while Apple's iOS privacy update also limited targeting capabilities. In its letter to investors, Snap called this year a "challenging year" characterized by "macroeconomic headwinds, platform policy changes and increased competition."

Snap's full-year 2022 revenue grew 12% to $4.6 billion. Snap said in its earnings report that it would not provide guidance for the next stage of its performance. However, in a letter to investors, the company said its "internal forecast" revenue would decline 2 to 10 percent compared to the same period last year. Analysts had expected a slight increase in revenue. "On the earnings front, we expect the operating environment to remain challenging as we expect headwinds faced over the past year to continue throughout the first quarter," the company said in the letter.

For Internet companies backed by advertising, the start of the fourth-quarter earnings season was not optimistic. Later this week, investors will have a clearer picture of the overall state of the sector. Facebook parent company Meta will report fourth-quarter earnings on Wednesday, and Google parent company Alphabet and Amazon will report results on Thursday. After Snap's earnings report, Meta shares fell 2%. Shares of Pinterest, which will report earnings next week, fell nearly 5 percent.

Software giant Microsoft released its latest earnings report last week. The company reported a 10 percent increase in revenue from its social media platform LinkedIn from a year earlier, and a 10 percent increase in search and news advertising revenue. After Elon Musk took over Twitter last October, the company stopped publishing quarterly results. The company is offering incentives to entice advertisers to return to the platform after a massive churn.

Mark Mahani, an analyst at consultancy Evercore, said: "It's tougher for them to win advertising revenue in this market." He added that with tight budgets, brands are more likely to spend their limited ad dollars on larger platforms, such as Google or Meta.

Snap said it will refocus its investments to focus on expanding community and user engagement, accelerating and diversifying sales growth, and developing augmented reality (AR) technology. The company reported that as of the fourth quarter, paying subscribers to the Snapchat+ service had surpassed 2 million. Snap launched this subscription service last summer, allowing users to experience its pre-release version and exclusive features for a monthly fee of $3.99 per month.

As Snap executives told analysts several times last year, the company's online advertising platform is easy to use and enables brands to launch campaigns quickly. But its simplicity also means that businesses could quickly halt their advertising campaigns, seriously impacting Snap's finances.

In response to the worsening situation, Snap announced in August that it would cut 20 percent of its more than 6,000 employees. The company has also done more to save costs, including shelving several projects that were once considered core, including the Camera Drone and Snap Originals projects.

On Tuesday, local time in the United States, Snap shares closed up more than 4%, closing at $11.56. But after the earnings report, the stock plunged more than 14% in after-hours trading.

Last year, the Nasdaq Composite suffered its worst year since 2008, with Snap among the hardest hits. Snap's stock price fell 81 percent as revenue growth stagnated and competition for remaining digital advertising revenue intensified. But as tech stocks rose overall, the stock also began to rebound, up a total of 29% in January. (Golden Deer)