Snap Revenue Rises, but Losses Widen as Restructuring Hits Earnings

Snap Revenue Rises, but Losses Widen as Restructuring Hits Earnings

Snap Inc. reported $1.13 billion in revenue in the third quarter of 2022 amid a period of tumult in which it pulled its forward-looking guidance, laid off some 20 percent of its employees and completely restructured its operations.

Revenue was up 6 percent from a year prior, but essentially flat with Q2. Snap reported a net loss of $360 million, owing in part to extensive restructuring charges.

Daily active Snapchat users rose to 363 million in the quarter, up from 347 million the quarter prior, and up 19 percent year-over-year.

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In August, the company announced a complete restructuring, with CEO Evan Spiegel saying that the company was planning to “increase focus on our three strategic priorities: community growth, revenue growth and augmented reality.”

Focusing on those core areas would help return the company to growth mode, Spiegel argued.

As part of that restructuring, Snap laid of about 20 percent of its employee base and scrapped multiple business lines, including its Snap Originals programming. Snap reported restructuring charges of $155 million in the quarter.

“This quarter we took action to further focus our business on our three strategic priorities: growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality,” said Spiegel in a statement Thursday. “The growth of our community to 363 million daily active users, an increase of 19% year-over-year, continues to expand our long-term opportunity as we navigate this volatile macroeconomic environment.”

Snap has served as something of a canary in the coal mine for tech companies this year, after warning in May that the macroeconomic environment was worsening.

It continued to ring the alarm bells in Q3, citing “significant headwinds” to its business. And its role as social media’s canary may also be tested as it warned of slowing engagement in the U.S., its most mature market.

“Total time spent watching content in the United States decreased 5% year-over-year as the diminished depth of engagement with Friend Stories was not fully offset by the growth in viewership and growth in time spent with Discover and Spotlight in the U.S.,” the letter said.

The company also warned that sales growth continued to slow, and it was not expecting any growth in the current quarter.

“We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures and rising costs of capital,” the letter continued. In some industries where topline growth remains strong, but businesses are experiencing input cost pressure due to inflation, we have observed reduced campaign budgets as businesses seek to offset input cost pressures.”

The letter continued that the company is focusing its investments on the Spotlight creator platform and on direct-response advertising, which it believes are poised to grow even amid the larger economic uncertainty.

Indeed, speaking on the company’s quarterly earnings call, Spiegel said that Spotlight will be a focal point for the company in coming months.

“Viewership is up, that means our overall opportunity is expanding if we can increase people’s depth of engagement,” Spiegel said, adding that while users are watching stories from close friends, after that it is seeing diminishing returns. “At some point, content on Spotlight or Discovery is maybe more engaging.”

So the company will seek to shift users to those products, while building out a Spotlight ad business, as well as advertising in augmented reality environments.

Jerry Hunter, Snap’s newly minted COO, said that reorganizing the company’s advertising business is his top priority, but the company will also look to grow its Snapchat+ subscription offering to “diversify topline growth.”