Snap reported user growth but a wider loss in the second quarter

Snap, the maker of Snapchat, on Thursday reported its slowest quarterly growth and a wider financial loss, but declined to forecast future performance due to “uncertainties related to the operating environment.”

Revenue in the second quarter was $1.11 billion, up 13 percent year-over-year. Snap’s growth was lower than at the start of the pandemic, when it reported a 17 percent increase in revenue. The company said in May that it did not expect to meet its revenue targets for the quarter due to difficult economic conditions. Its net loss was $422 million, up from $152 million a year earlier, as the company’s expenses rose nearly 29 percent.

Snap added that revenue for the current quarter was “roughly flat” from a year ago and that it would “significantly reduce” the hiring rate. In response, its shares fell more than 25 percent in after-hours trading Thursday after closing at $16.35.

One bright spot was user growth. Snap said its daily active users rose 18 percent to 347 million in the second quarter, beating the 343 million expected by Wall Street analysts.

Evan Spiegel, Snap’s CEO, admitted that user growth wasn’t enough. “While the continued growth of our community increases the long-term opportunities for our business, our financial results (for the quarter) do not reflect our ambition,” he said in a statement.

Snap has been hit by rising inflation, a slowing economy and industry changes that have hurt its advertising business. Last year, Apple changed its privacy settings to allow users to opt out of app tracking, making it harder for social media companies to target ads.

Snap regularly forecasts its financial performance. By refusing to do so this time, the company is joining others who have decided to say less during a period of macroeconomic uncertainty. First, Apple stopped providing financial guidance early in the pandemic. Twitter, which is embroiled in a legal battle with Elon Musk over its $44 billion acquisition of the company, is not offering financial guidance either.

Snap’s chief financial officer, Derek Andersen, said in an earnings call that digital advertising, which generates the bulk of the company’s revenue, has been the easiest for advertisers to cut during the economic downturn. That happened in the second quarter for Snap, he said.

The decline in digital advertising could be compounded by Snap’s younger audience, which has less spending power, said Brent Till, an equity analyst at Jefferies.

“The biggest factor is the pullback of the economy,” Mr Till said. “It’s incredible how the environment has changed. All possible headwinds are hitting them now.”

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