Snap shares drop 22% after company misses sales expectations

Revenue surged to $1.07bn, falling short of analysts’ expectations of $1.10bn

Snap narrowed its net loss by almost 64 per cent in the third quarter. Reuters

Snap stock fell more than 22 per cent in extended trading on Thursday after the company’s third-quarter revenue missed Wall Street expectations.

The company’s revenue surged almost 57 per cent to more than $1.07 billion, though analysts predicted $1.10bn. It was the first quarter of more than $1bn sales in the company's history.

But the company, which owns social media platform Snapchat, narrowed its net loss by almost 64 per cent to $72 million in the three months to September 30 from a $200m loss in the same period a year ago.

The company’s chief executive, Evan Spiegel, said he is excited about the long-term opportunity and potential for Snap’s business.

“We are now operating at the scale necessary to navigate significant headwinds, including changes to the iOS platform [Apple’s operating system] that impact the way advertising is targeted, measured and optimised, as well as global supply chain issues and labour shortages impacting our partners,” said Mr Spiegel.

Snap's chief executive Evan Spiegel said he is excited about the long-term opportunities. AFP

Apple’s latest update to its operating system is intended to make it harder for advertisers to track people as they rotate between different apps on their device.

People will be given the option to opt in or out of app tracking. This will restrict how technology companies such as Facebook and Google gather data for advertising purposes.

“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” said Mr Spiegel.

Snap’s daily active users grew 23 per cent on an annual basis to about 306 million in the third quarter. This was the fourth consecutive quarter of more than 20 per cent year-over-year growth in daily active users, which Snap defines as registered users who open its Snapchat application at least once in a 24-hour period.

The company reported an adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of $174m and free cash flow of $52m in the third quarter.

In its future guidance, Snap expects its revenue to hover between $1.1bn and $1.2bn in the fourth quarter, with an adjusted Ebitda between $135m and $175m in the three months to December 31.

Snap grew “sequentially” in North America and Europe, which represented the company’s largest monetisation opportunities in the near and medium term, said Mr Spiegel.

Snap’s daily active users grew 23 per cent on an annual basis to nearly 306 million in the third quarter. Reuters

The company’s operating expenses were $464m in the third quarter, up 37 per cent year-on-year. The company also stepped up its hiring in the last quarter as it saw an increase in its business in the post-Covid era.

“Total employee related costs were up 31 per cent year-on-year driven by a 40 per cent increase in full time headcount. This reflects ongoing investments in our team as well as the integration of acquisitions made over the past year,” Snap’s chief financial officer Derek Andersen said.

Mr Andersen said the dip in last quarter’s sales was due to the “headwinds associated with iOS platform policy changes”.