Snap Stock Sinks on Weak Sales Forecast, and Executives Say More Investments Will Likely Be Made to Improve Platform Functionality

Snap Inc., the social-media platform, experienced a decline in its shares during after-hours trade on Tuesday, following its forecast of third-quarter sales that fell short of expectations. Concerns were raised over the uncertain digital advertising landscape and the company's substantial spending to enhance user interactions and advertising effectiveness on its platform.

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According to Snap's projections, the third-quarter revenue is expected to be in the range of $1.07 billion to $1.13 billion, with the midpoint of that range falling below FactSet's estimated figure of $1.13 billion. Consequently, shares plummeted by 18.4% after the market closed on Tuesday.

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Snap's earnings release acknowledged the challenges the company is facing in its revenue generation, attributed to the ongoing improvements to its advertising platform. The advertising demand remains somewhat uncertain, making it difficult to forecast accurately.

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Similar to other social-media platforms, Snap has encountered difficulties due to the slowdown in the digital ad market, influenced by advertisers' caution amidst economic uncertainties. Additionally, competition from platforms like Tiktok and Instagram, along with Facebook's parent company Meta Platforms Inc., has added further pressure.

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To address these challenges, Snap has been heavily investing in strengthening its advertising platform to provide users with more relevant ads and deliver greater value to businesses advertising on its platform. The company has also been focusing on enhancing user engagement, and during the earnings call, it was revealed that engagement with Snapchat friend stories and time spent watching Spotlight have shown positive trends.

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JPMorgan analysts noted the company's heightened infrastructure costs and acknowledged that the digital ad market had stabilized in the second quarter. Despite concerns about the economy, advertisers seemed less cautious during that period. However, they also highlighted that it might take multiple quarters of improved performance for investors to gain confidence in Snap's long-term prospects.

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For the second quarter, Snap reported a net loss of $377 million, or 24 cents per share, compared to $422 million, or 26 cents per share, in the same quarter of the previous year. Revenue for the quarter was $1.07 billion, down from $1.11 billion in the same quarter last year. The company's results slightly surpassed analysts' expectations.

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Snap's daily active users increased by 14% year over year, reaching 397 million.

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Evan Spiegel, the Chief Executive Officer of Snap, emphasized during the earnings call that despite competition from larger social platforms, Snap still possesses unique advantages, particularly in facilitating communication among friends and family. He highlighted the importance of building deeper relationships in a world where other platforms often prioritize public social-media-style features that foster a sense of competition for popularity and engagement metrics.

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