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SNAPBACK

Snapchat’s comeback isn’t over yet

A broken ethernet cable with frayed wires crosses in front of the Snapchat logo.
REUTERS/Dado Ruvic
Snap’s triumphant investor narrative is fraying.
  • Nicolas Rivero
By Nicolas Rivero

Tech Reporter based in New York

Published Last updated

Snapchat’s stock price plunged more than 40% today after the company announced its revenue would grow slower than expected this quarter. In an 8-K disclosure filed to the US Securities and Exchange Commission May 23, Snap said “the macroeconomic environment has deteriorated further and faster than anticipated,” slowing down the company’s growth and biting into its profits.

In April, Snap predicted revenue would grow 20-25% in the April-June quarter, compared to the same quarter last year. Snap still expects its revenue to grow year-on-year, according to a memo from CEO Evan Spiegel, but it won’t grow as quickly as the company anticipated.

Investors—briefly enchanted with Snapchat’s growing userbase, rising revenues, and march toward profitability—have all but given up on the stock. Snap shares have lost nearly 85% of their value since they hit their high water mark above $83 on Sept. 24. Those same shares are now worth less than $14—well below Snap’s 2017 IPO price of $24 per share.

But despite Wall Street’s retreat, Snapchat’s comeback isn’t over. The app’s revenue and user numbers are still rising, and the business is in a much better position than it was in 2018, when Snapchat’s growth stalled for a year and everyone from Fox News to Kylie Jenner declared it dead. For now, the company’s future depends on its latest gambit: convincing users to shop for clothes and concert tickets on Snapchat.

Apple’s IDFA privacy changes tank apps’ advertising revenues

In April 2021, Apple announced it would begin asking iPhone users for permission before allowing apps like Facebook and Snapchat to track their activity to better target ads and measure the effectiveness of marketing campaigns.

In October, Snap announced its third quarter earnings and revealed its revenue had grown (a mere) 57% year-over-year to $1.07 billion for the quarter—instead of the $1.1 billion Wall Street analysts had predicted. Snap CEO Evan Spiegel said Apple’s privacy changes made it “​​more difficult for our advertising partners to measure and manage their ad campaigns for iOS.” Snap’s stock price tumbled 20% the next day and has continued its downward trajectory ever since.

But investor sentiment isn’t always a reliable indicator of a company’s performance. When Snapchat’s user and revenue numbers were flat in 2018, investors left the stock for dead. When Snap began growing again the next year, investors piled on and quadrupled the company’s stock price. When a design change from Apple caused Snap to bring in 3% lower revenues than Wall Street expected in October, investors erased all the gains Snap’s stock had made since 2018.

“It’s pretty simple,” Wedbush Securities analyst Michael Pachter told Quartz back in 2020. “Most investors know how to draw a line between two points, and most of them extrapolate the line into perpetuity.”

Snap’s future revenue growth depends on e-commerce

The lesson from Apple’s privacy update for iOS devices—which Google is expected to replicate on Android devices—is that apps can’t pin their entire business model on tracking everything their users do on their smartphones in order to target ads. That, of course, is a threat to a company like Snap, which still makes most of its revenue by selling smartphone ads. But the company is already on a quest to diversify its sources of revenue away from targeted ads.

Snap has launched or started developing several new features designed to prod users to buy products from brands within the app, which would allow Snap to take a cut of the proceeds.

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