Tech giants see stocks slide after Snap misses Q2 revenue

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Snap has missed its second quarter earnings, posting revenue of US$1.11 billion for the quarter ended 30 June. While this was a 13% increase compared to the prior year, the company missed its previous guidance of 20% to 25%. Its net loss was US$422 million compared to US$152 million in the prior year.

"While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect the scale of our ambition. We are not satisfied with the results we are delivering, regardless of the current headwinds," the company said in its investor letter.

Snap added that platform policy changes have upended more than a decade of ad industry standards, and macroeconomic challenges have disrupted many of the industry segments that have been most critical to the growing demand for Snap's ad solutions.

"We are also seeing increasing competition for advertising dollars that are now growing more slowly. Our revenue growth has substantially slowed, and we are evolving our business and strategy to adapt," Snap explained. While it is working to reaccelerate growth and take share, Snap believes it will likely take some time before it sees significant improvements.

Snap explained that the combination of macroeconomic headwinds, platform policy changes, and increased competition have limited the growth of campaign budgets. In some cases, advertisers have lowered their bids per action to reflect their current willingness to pay. For example, in some industries where topline growth remains strong, but businesses are experiencing input cost pressure due to inflation, Snap has observed reduced marketing spending and lower bids per action.

Despite this, Snap still sees significant room to drive growth via its direct-response ad platform. It will focus on three core priorities: improving its privacy-preserving first-party measurement tools, ensure its ad performance is well represented in advertisers' preferred third-party measurement solutions, and continuing its investment in ranknig and personalisation.

The company's dismal results also led to companies involved in advertising, including Meta and Alphabet, losing about US$80 billion in combined stock market value, Reuters reported. Snap's shares also dipped 26%, bringing its loss this year to over 70% and also led to the company losing US$7 billion of its market capitalisation, Reuters added.

Meanwhile, Meta's shares tumbled 5% in extended trade while Alphabet, Twitter, Pinterest fell 3%, 2% and 7% respectively, Reuters said. According to Reuters, the drop in shares led to Alphabet losing over US$40 billion in market capitalisation while Meta lost US$25 billion. Snap's dip in shares Shopify and Roblox were also impacted by Snap, its shares falling 3% each after hours, Reuters said.

Meanwhile, Snapchat reported a 54 million year-on-year increase (18%) in daily active users to 347 million. Daily active users also increased sequentially and year-over-year in each of North America, Europe, and Rest of the World.

The company also managed to grow its content offerings, with total time spent watching Spotlight content growing 59% year-over-year. The daily average number of Snapchatters aged 25 and older engaging with shows and publisher content increased by more than 40% year-over-year. It also rewewed partnerships with the NBA, WNBA, and NFL with content deals covering Discover Shows, Spotlight Challenges, AR experiences, and Cameos.

At the same time, it also expanded its offering for advertisers by rolling out capabilities such as a new AR image processing technology for businesses, which transforms existing 2D product photography into AR-ready assets for try-on Lenses, further simplifying the AR Lens workflow. Other new advertiser capabilities also include Dynamic Travel Ads. According to Snap, this is the first category expansion outside of eCommerce of its current Dynamic Ads offering, specifically serving hotels, airlines, tours, and online travel agencies.

3 priorities for Snap

Moving forward, Snap is focusing on three priorities. First, it will continue to invest in its products and platforms to sustain the growth of its community, the company said in its letter to investors. Second, Snap will invest heavily in its direct-response ad business to deliver measurable returns on ad spend. Lastly, the company will cultivate new sources of revenue that will help diversify its top-line growth to build a more resilient business.

It also intends to recalibrate its investment levels to build a path to free cash flow break-even or better, even with reduced rates of revenue growth. Snap will also continue to invest in a long-term perspective, especially in areas that are critical to realising the long-term opportunity of AR. However, it is also taking a hard look at how to better drive productivity aross its teams. This will included a "substantially reduced rate of hiring and a strict reprioritisation of goals and initiatives across the company".

Meanwhile, Snap's co-founders Bobby Murphy and Evan Spiegel have each entered into new long-term employment agreements with the company to serve in their respective roles as CTO and CEO through at least 1 January 2027, in exchange for US$1 per year and no equity compensation. Separately, the company is betting on Asia Pacific by expanding its local team in Singapore in June. It brought on board Saurabh Dangwal as head of global brands, APAC; Dan Heffernan as head of global agency, APAC; Igor Lima as head of global brands, tech, APAC; Kelly Chiu as product marketing manager; Kanishk Khanna as director, media partnerships, APAC; and Monisha Singh as recruitment lead, APAC.

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