Snap on Track for Fourth Straight Quarterly Loss as Revenue Growth Slows

Inflation, Cooling Economy Weigh on Ad Spending

Image of Snap logo on smartphone


Key Takeaways

  • Snap, a social media platform company, will likely report adjusted EPS of 10 cents for the fourth quarter, down from 22 cents in the prior-year quarter.
  • Analysts expect Snap's revenue to be $1.3 billion, slightly higher than in the fourth quarter of 2021.
  • Snap faces a persistent slowdown in spending by advertisers, traditionally its primary source of revenue.

Snap Inc. (SNAP), the owner of Snapchat, will probably post a fourth consecutive quarter of losses as revenue inches upward at the slowest pace in at least five years amid a decline in ad spending.

Snap likely will report a fourth-quarter net loss of about $183 million, or adjusted earnings per share (EPS) of 10 cents, a drop of more than half from last year, according to estimates from Visible Alpha. While revenue probably rose to a record $1.3 billion, that would be just 0.5% above last year. Snap reports results after markets close on Tuesday.

Snap and other social media platform faced plunging advertising revenue in recent quarters amid a weakening economy, rampant inflation, and global instability. The company's last two fiscal reports prompted selloffs of Snap shares, and it's likely ad-related issues persisted through the last months of the year.

More recently, Snap also became a target of U.S. legislators for its potential role in the nationwide fentanyl crisis. Witnesses testified at a late January congressional hearing that Snap’s popular photo and texting app, known for its disappearing messages, was uniquely designed to attract drug transactions. This attention won't affect the social media firm's fourth-quarter performance but could be a factor going forward.

Snap shares plunged early last year and have hovered around record lows since then, for a drop of over 64% in the last 12 months compared with a 23% fall for the S&P 500 Communication Services Index (see chart below).

One-Year Total Return for S&P 500 Communication Services and Snap
Source: TradingView.
Snap Key Stats
  Estimate for Q4 FY 2022 Actual for Q4 FY 2021 Actual for Q4 FY 2020
Adjusted Earnings Per Share ($) $0.10 $0.22 $0.09
Revenue ($B) 1.3 1.3 0.9
Daily Active Users (M) 375.4 319.0 265.0

Source: Visible Alpha

The Key Metric: Daily Active Users

Snap's daily active users (DAUs), defined as any registered Snapchat user who opens the app at least once during a 24-hour period, offer a snapshot of the size of Snap’s total user base. Snap generates the majority of its revenue through selling advertisements. The bigger the user base, the more attractive Snap’s platform is for advertisers. Snap also must keep spending to provide more- engaging features than competitors to attract more users.

Snap's quarterly DAU growth has hovered around 20% since early 2020, though it began to decelerate at the start of 2022. Analysts predict a DAU gain of 17.7% for the last three months of 2022.

Article Sources
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  1. Yahoo! Finance. "Snap Stock: Sentiment Looks 'Washed Out' and May Move Up from Here, Analyst Says."

  2. Statista. "Most Popular Social Networks Worldwide as of January 2022, Ranked by Number of Monthly Active Users."

  3. Visible Alpha. "Financial Data."

  4. Snap Inc. "Snap Inc. Q4 2022 Earnings."

  5. Bloomberg. "Snap's Stock Investors Risk More Pain on Advertising Revenue Woes."

  6. CNBC. "Snapchat’s Role in Fentanyl Crisis Probed During House Roundtable: ‘It’s a Snap-Specific Problem’."

  7. Snap Inc. "Form 10-K for the Fiscal Year Ended Dec. 31, 2021," Page 5.

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