Key points to remember
- Revenue grew 6% in the third quarter, but it was the slowest growth ever for the company.
- Snap continues to struggle to monetize its user base, as shown by zero growth in the third quarter.
- On the positive side, daily active users across the globe continue to grow.
Snap has been one of the companies that has benefited from the pandemic. As people were forced to stay home, many flocked to social media. This led to a massive increase in the number of daily Snap users. As a result, the stock flourished. But as life began to return to normal, Snap’s business slowed. Now Snap is in a transition phase, hoping to survive a possible recession without too many lumps. Here’s what investors need to know about Snap’s latest earnings and where the stock is headed.
Snap stock in the news
Snap stock lost nearly 30% of its value on Friday, October 21, 2022. Most-cited issues that led to the drop in Snap stock value include third-quarter revenue below expectations and no indication for the fourth quarter from Snap management. a statement that it expects stable growth for the fourth quarter. Lower ad revenue in the third quarter and recognition revenue won’t increase in the fourth quarter hit Snap hard and indicate advertisers are cutting spending in anticipation of a recession.
The company posted a 6% increase in year-over-year revenue to $1.13 billion for the third quarter of fiscal 2022. It also represents its slowest quarterly growth rate ever. . Wall Street predicted the company would post $1.12 billion in revenue.
Although Snap beat profit expectations, it reported a net loss of $359 million due to a 25% increase in expenses and restructuring. The most significant part of the restructuring was the layoff of 20% of the company’s global workforce.
Another issue is Snap’s inability to monetize its user base into a reliable revenue stream, as evidenced by a drop in average revenue per user from $3.49 in the third quarter of fiscal 2021 to 3.11. $ in the third quarter of fiscal 2022. This represents an 11% loss in revenue per user among the total number of Snap users globally.
Snap had some positive news to share in the form of a 19% increase in daily active users (DAUs) to 363 million, from 306 million daily active users for the same quarter in 2021. While growth of users occurs worldwide, Snap is seeing growth outside of North America and Europe.
Instant shares have been steadily falling throughout the week, closing at $9.17 yesterday, down 80.32% year-to-date.
Examination of the income statement
Snap reported an operating loss of $359.5 million and a total comprehensive loss of $372.9 million for the third quarter that ended September 30, 2022, and a total loss of $1.14 billion. dollars for the 9 months ending on the same date. This is a sharp increase from a loss of $71.9 million in the third quarter of fiscal 2021 and a loss of $510.5 million for the first 9 months of 2021.
Some of the losses were driven by debt and equity securities of ($75.7 million), operating lease liabilities of ($12.1 million), purchases of property, plant and equipment of ($37. $8 million) and purchases of marketable securities at ($821.8 million).
Balance sheet review
Snap reported total unaudited assets of $8.28 billion at the end of the third quarter of fiscal 2022. Its current total liabilities are $5.38 billion and it reported an accumulated deficit of 9.42 billions of dollars.
Its assets include $1.91 billion in cash and cash equivalents, $2.51 billion in marketable securities, $992.7 million in accounts receivable and $115.9 million in prepaid and other expenses. short-term assets.
Snap’s current liabilities include accounts payable of $188.6 million, operating lease liabilities of $57.9 million, and account fees and other current liabilities of $893.4 million.
Outlook for Snap shares
Snap relies heavily on ad revenue. The field of social media as a profit center for advertisers is changing as consumers have more options to grab their attention than they have time to devote to it. Advertisers rely on active users to buy the products they’re promoting, and if they feel they’re more likely to attract viewers on another platform, they won’t hesitate to spend elsewhere. . Snap anticipates this by diversifying its efforts to reach users, provide them with entertainment, and provide them with an experience that keeps them coming back to the Snap platform over others.
The company significantly diversified its revenue sources in the third quarter of fiscal 2022. The number of daily active users increased by 57 million compared to the same quarter in 2021.
The time spent by users on the platform has also increased, with those aged 35 and over showing a 40% increase in their viewing time. The biggest problem is that its user base outside of North America and Europe is growing the fastest, but revenue in North America averages $8.13 per user, compared to $0.89 per user for those outside North America and Europe.
As the weakness in the global economy deepens and advertisers start spending money again, Snap has the groundwork to surprise investors, assuming it can better monetize more of its user base. .
Another potential area for growth is virtual reality. Snap has invested heavily in augmented reality to compete with Meta’s virtual reality platform. In 2021 the company bought Wave Optics to help out. However, it’s not yet clear if people care enough about VR to make it profitable for Snap. As investors have seen with Meta – a company 100% dedicated to virtual reality – the investment still does not pay off.
If Snap is successful in its diversification efforts, its stock should resist the decline in value and regain some of its losses over time. It’s worth noting that all tech stocks have been hit hard by various market forces, and Snap isn’t the only one to suffer.
However, it is hard to ignore that the company lost 80% of its value in 2022. Its future rests on management’s ability to turn the user base into a reliable revenue stream through its various efforts and to return to profitability.
Instant stock has been hit hard in 2022, and for good reason. As active users grow, the company still needs to figure out how best to monetize that user base. Add to that fears of a global recession, and much of Snap’s ad revenue dried up. For this reason, investors can be patient with this stock. There is no indication or reason for its value to increase rapidly. If investors see that advertisers are starting to spend again, that could be a signal to slowly build a position in that stock.
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