Snap (SNAP) shares plunged lower Wednesday after the the messaging app maker posted a surprise fourth quarter loss and cautioned that a pullback in ad spending would continue well into the current year.
Snap said revenue for the three months ending in December were up just 0.1% from last year at $1.3 billion -- the slowest rate of growth since the company went public in 2017 -- a tally that essentially matched Street forecasts, with Snap noting that current quarter revenues were already down 7% from last year's pace and could fall as much as 10% by the end of March as it continues to re-tool its platform to compensate for Apple Inc.'s (AAPL) privacy changes, first unveiled in 2021, which prevent user tracking.
Daily active users were up 17% to 3675 million, Snap said, but average revenue per user tumbled 14.5% to $3.47, well before forecasts, even as time spent watching by its global users was up 100% from last year.
That lead to a net loss of $288 million, compared to a small $23 million profit last year, although adjusted earnings were 14 cents share, compared to the Street forecast of 11 cents per share.
Snap said it generated $55 million in free cash flow last year, its second positive tally in succession, putting it on a "clear path to delivering sustained adjusted earnings profitability", with more details expected at the group's investor day event in Santa Monica, California, later this month.
"From our recent conversations with our partners, it seems like advertising demand hasn't really improved, but it hasn't gotten significantly worse, either," co-founder and CEO Evan Spiegel told investors on a conference call late Tuesday. "I mean, obviously, the brand spend is significantly reduced, like we saw in the quarter, but our direct response business continued to grow in Q4."
"And in general, it seems like our partners are just managing their spend very cautiously so that they can react quickly to any changes in the environment," he added. "I think as we look at Q1, the most significant impact thus far has really been the changes we're making to our ad platform. Maybe just like taking a step back here. It's really been on a journey rearchitecting our ad platform."
Snap shares were marked 112.3% lower in early Tuesday trading to change hands at $10.14 each, a move that would still leave the stock with a modest six-month gain of around 6.3%.
Meta Platforms (META), which owns the Facebook, Instagram and WhatsApp collection of apps and generates nearly 98% of its revenues from online advertising, was marked 0.5% lower following last night's Snap update and ahead of its own fourth quarter earnings after the closing bell.
Meta is expected to post a bottom line of $2.22 per share, down 39.5% from last year, on revenues of $31.53 billion.
Cost cuts, however, alongside the group's decision to slash around 11,000 from its global workforce, could boost profits in its many 'Family of Apps' division, even with the slow ad spend, with a weaker U.S. dollar providing a further 2023 tailwind.
"To be clear, quarter-to-date declines are due to advertising technology changes, while time spent watching all forms of content grew year-on-year as Snap noted that the advertising environment is, so far, stable in the first quarter," said JMP Securities analyst Andrew Boone, who carries a 'market perform' rating on the stock.
"We believe shares are fairly valued given increased competition for user time and as Snap’s digital advertising measurement and targeting continue to adjust for privacy change," he added.
