Snap Reports Slowest Quarterly Growth in Over a Year

(Corrects paragraph 8 to say ad revenue growth declined to 1%, not ad revenue declined)

By Jaspreet Singh

(Reuters) – Snap Inc. faced a setback on Tuesday as it reported its slowest quarterly growth in more than a year. The company was adversely affected by a temporary glitch in its ad platform and advertisers showing a preference for larger rivals like Meta, which led to a sharp decline of over 16% in its shares during extended trading hours.

The Snapchat-parent company stated that it had resolved an error that allowed some ads to run at significantly lower prices unintentionally.

Snap is facing tough competition from popular platforms such as TikTok, Facebook, and Instagram, owned by Meta. Advertisers are choosing these larger platforms as they cut back on marketing budgets due to economic uncertainty. Meta and Reddit reported positive second-quarter results last week, further intensifying the competition for Snap.

Jasmine Enberg, principal analyst at eMarketer, commented, “The digital ad tailwinds that propelled Meta and Reddit to blowout quarters turned into a light breeze for Snap.” She added that under different circumstances, investors might have overlooked the ad platform misstep, but in the current competitive landscape, there is little room for mistakes.

Snap’s quarterly revenue was also impacted by the timing of Ramadan, which influenced ad spending patterns. Additionally, the end of the “de minimis” exemption and reduced marketing budgets from Chinese advertisers further contributed to the revenue challenges faced by the company.

In April, ad revenue growth declined to about 1% before recovering in May. This prompted Snap to introduce Sponsored Snaps, a new video ads format that appears in user inboxes, more widely in June, according to CFO Derek Andersen.

The expanded roll-out of Sponsored Snaps across the U.S. and other global regions has resulted in increased user actions and deeper engagement with ad content, the company reported.

Snap, based in Santa Monica, California, reported second-quarter revenue of $1.34 billion, up approximately 8.7% from the previous year. The net loss widened to $263 million from $249 million a year ago. Small and medium-sized businesses were the primary contributors to ad revenue growth, with the subscription service Snapchat+ playing a key role in diversifying revenue streams beyond advertisements.

Snapchat+ subscribers increased by 42% to nearly 16 million for the quarter ending June 30. Daily active users also saw a 9% rise to 469 million, slightly surpassing estimates of 467.9 million.

The company’s third-quarter revenue forecast ranges between $1.48 billion and $1.51 billion, compared to analysts’ average estimate of $1.48 billion, as per data compiled by LSEG.

(Reporting by Jaspreet Singh in Bengaluru; Editing by Leroy Leo)