Snap’s losses nearly quintupled in the third quarter

The news: Times are tough for Snapchat, whose net losses in the third quarter almost quintupled from year to year for $359.5 million, including a significant restructuring charge.

  • The revenues were $1.13 billion, up 6% year-over-year, but this is the first time the company has posted single-digit growth since its inception. They were just below expectations of $1.14 billion.
  • Daily active users exceeded expectations at 363 millionbut average revenue per user (ARPU) tear down from $3.49 to $3.11 year over year.

Bad news after bad news: Snap’s setbacks in 2022 foreshadowed those of its competitors. His May earnings warning precipitated a brutal Second Quarter Earnings Report not just for Snap, but for almost all social media stocks. This quarter could portend similar results.

  • Even before the current turmoil in social media and the digital advertising world, Snap had struggled to make a name for itself as a digital advertising platform. He tried several strategies to increase ad exposure and diversify revenue, from producing a wider range of original contenthas a subscription serviceto a now discontinued camera drone called Fairy.
  • But none of these projects seemed to work. Snap’s ad revenue continues to stagnate. This strong user growth shows Snap is a service people want, but its function primarily as a chat app makes it difficult to monetize with ads.
  • It’s new SnapChat+ The subscription service was a slight bright spot, attracting 1.5 million subscribers in 170 countries. But much of that growth, and most of Snapchat’s new users, come from countries other than the United States, a sign that Snap is struggling to thrive in the region responsible for most of its revenue.

The analyst takes: Snapchat is going through its toughest time yet,” says Insider Intelligence senior analyst Jasmine Enberg. “Its disappointing third-quarter revenue is a combination of the short-term challenges, but it also reflects Snap’s longer-term challenge of being a less essential player in the digital advertising market and a platform that many advertisers are still struggling to fully understand. Going forward, Snap needs to continue to double down on features that appeal to its core user base and explore other avenues outside of advertising in order to change things.

The big takeaway: Snap’s future is uncertain. User growth is showing interest in Snapchat’s platform, but repeated failure to attract advertising dollars has driven the company into a valley that is sure to raise questions about consolidation and new competitors.

  • We expect Snap’s US ad revenue to total $2.72 billion in 2022, well below platforms like LinkedIn ($4.02 billion) and even another struggling platform like Twitter ($3.01 billion).