Snap Posts Strong Earnings, Faces Advertiser Headwinds Amid Middle East Conflict

25 Oct, 2023

Snap Posts Strong Earnings, Faces Advertiser Headwinds Amid Middle East Conflict

Snap, the parent company of Snapchat, witnessed a rollercoaster ride in its stock price during after-hours trading. Initially, shares soared by as much as 20%, as the company outperformed expectations on both the top and bottom lines. However, they later declined and remained relatively flat as investors digested news about a significant number of advertisers pausing their spending in the wake of the Middle East conflict.

In its third-quarter report, Snap showcased a return to sales growth, with revenue rising by 5% compared to the previous year, reaching $1.13 billion. However, the earnings per share for the quarter came in at 2 cents, which was lower than the 8 cents per share reported in the third quarter of 2022.

Snap's internal forecast for the fourth quarter projects sales in the range of $1.32 billion to $1.38 billion. This falls slightly short of the $1.33 billion expected by analysts. Notably, Snap decided not to provide official fourth-quarter guidance this time, citing the unpredictable nature of the ongoing conflict in the Middle East—a shift from the previous quarter when they did offer official guidance.

The company pointed out that it had observed a significant slowdown in advertising spending from numerous brand-oriented campaigns right after the Middle East conflict began. This pause in advertising activities is expected to affect Snap's sales in the current quarter.

Despite its revenue growth, Snap reported a 2% year-over-year increase in its GAAP net loss, which reached $368 million, or 23 cents per share for the third quarter.

Snapchat+, the company's subscription service priced at $3.99 per month, witnessed substantial growth, with the number of subscribers increasing from four million in the previous quarter to over five million.

Snap's CEO, Evan Spiegel, attributed the company's positive Q3 growth to significant cost-cutting efforts, which have contributed to overall business improvement.

In a bid to streamline operations and cut costs, Snap had previously announced a 20% reduction in its workforce, which amounted to over 6,000 employees. This cost-cutting drive continued through September, with Snap closing down its augmented reality enterprise business, leading to the departure of 170 employees.

Spiegel emphasized Snap's commitment to enhancing its advertising platform to provide higher returns on investment for its advertising partners. The company has also revamped its go-to-market strategies to better serve partners and ensure customer success.

Snap disclosed that its Chief Operating Officer, Jerry Hunter, is retiring after seven years with the company.

Furthermore, the company announced its authorization of a stock repurchase program, with a cap of $500 million. Snap's financial position remains robust, with $3.6 billion in cash, cash equivalents, and marketable securities as of September 30, 2023.