After Russia’s war in Ukraine hit Snapchat’s advertising business, forecasts for the current quarter were already cautious. But even they can’t be kept.
The makers of the Snapchat photo app have shocked investors with forecasts for the current quarter: the share fell by around 31 percent in after-hours trading.
It is likely that the targets for sales and operating profit will be missed, the company said. Since the forecast a month ago, the economic environment has continued to deteriorate – and faster than expected.
Snap relies on advertisers being willing to spend money on different types of ad products on the platform. In times of economic uncertainty, they often become more reserved.
Spiegel announces austerity measures
Snap had already adopted a cautious tone in April after business in the first quarter was slowed down by the Russian war of aggression in Ukraine, among other things. The warning now reveals a rapid deterioration in business. At the start of the year, Snap was so strong that there was still a 38 percent increase in sales in the first quarter – although many advertisers had temporarily stopped their campaigns after the Russian invasion. For the current quarter, Snap then only forecast growth of 20 to 25 percent, as the company was already expecting headwinds from inflation concerns, among other things. But even this expectation is likely to be missed.
Co-founder and boss Evan Spiegel now wants to save more. In an email to employees, he announced fewer new hires, as reported by the Financial Times and the tech blog The Verge, among others. Managers should also check their areas for possible cost reductions.
Snap is increasingly relying on augmented reality
Snapchat was primarily known for images that disappear on their own, but it is now also a platform for shopping and media content. In particular, Snap relies on so-called augmented reality (AR). The technology integrates digital content on the screen with the real environment. Snapchat lets consumers try out shoes or cosmetics virtually – and takes money from the company for it.
Investors quickly get nervous about Snap stock. They dropped the price by a quarter last fall after the company was hit harder than expected by Apple’s tightened data protection regulations on the iPhone. Even if the first quarterly profit was followed by a countermovement at the end of the year: a year ago the share was still quoted at over 60 dollars, now in after-hours trading it is only 15.51 dollars.
Investors also suspected tragedy for other ad-dependent tech companies given Snap’s woes. Facebook shares fell by around seven percent in after-hours trading and Google parent Alphabet’s stock fell by a good three percent.
