Snap's pandemic stock gains have been completely erased

Snap remains popular but hasn't convinced the ad industry to prioritize it
Snap's pandemic stock gains have been completely erased
Photo: Neilson Barnard (Getty Images)
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Snap Inc. posted another rough quarter of financial results on January 31, showing that its advertising challenges are far from over. The Snapchat parent company, whose stock hit an all-time high of $83 per share in September 2021, has seen its share price plummet in recent months. The price temporarily dipped below $10 per share following the earnings announcement, though it’s recovered slightly.

“2022 was a challenging year for our business, as we continued to be impacted by macroeconomic headwinds, platform policy changes, and increased competition,” Snap co-founder and CEO Evan Spiegel told investors on an earnings call about the company’s fourth-quarter 2022 performance (pdf).

Snap reported 375 million daily active users, up 17% year over year, and quarterly revenue of $1.3 billion, only slightly higher than the same quarter in 2021.

Amid rising interest rates and fears of a looming US economic recession, many large companies have scaled back their advertising budgets. While Snapchat is still wildly popular, especially among teens and young adults, it’s faced an uphill battle appealing to advertisers during a difficult economic period. Snap’s advertising woes could signal an industry-wide issue or, at best, a momentary reality until the broader economy improves and ad spend returns.

Snap has an Apple problem

When companies cut their ad budgets, they chop the experimental and hard-to-measure platforms first.

Facebook and Google are largely seen are crucial platforms for advertisers that deliver results (often click-throughs or product sales), while smaller platforms like Snap, Twitter, and Pinterest are lower on the list. However, there may be a bright side: Snap did report its “direct-response” revenue increased 4% year over year.

But Apple’s privacy changes have hurt ad-reliant social media platforms. These changes have effectively depleted app-makers’ data about user behavior and made it hard for companies like Snapchat to assure advertisers that their dollars are being spent effectively.

“Advertisers continued to pull back social ad spending into Q4, as economic challenges persisted, and the social platforms continued to reel from Apple’s privacy changes,” Insider Intelligence principal analyst Jasmine Enberg wrote. “Going forward, investors should be prepared for a new normal in social advertising, defined by much more modest growth.”

Snap also has a TikTok problem

Snapchat has also faced a threat from TikTok, owned by the Chinese company ByteDance. TikTok has quickly grown to more than 1 billion global users and defined the cultural moment of the pandemic.

While TikTok was a big winner of the pandemic, Snap fared well financially and its stock price quadrupled between the beginning of 2020 and the middle of 2021.

But those stock-price gains were erased in 2022, in part because of advertisers, but also because of shifting consumer habits.

“Last year, we saw that Snapchat users were posting and viewing fewer stories since the pandemic, partly because consumers simply weren’t out and about as much,” Kelsey Chickering, principal analyst at the market research firm Forrester, wrote. “TikTok picked up that share of time and continues to do so.”

Snap needs to monetize its user base

Snapchat boasts a faithful user base, especially among teenage and young adult users, but monetizing that user base has always been the biggest challenge.

“Snap’s secret weapon is its audience,” Enberg wrote. “Snapchat has managed to retain and grow its user base every quarter of 2022. Most of that growth, however, is coming from the rest of the world, which monetizes at a lower rate, and that hampered Snap’s overall ad revenue growth last year.”