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Struggling Snap Misses on Q3 Revenue, Takes $155 Million Charge for Layoffs

Snapchat daily users increased 16 million in the quarter to 363 million worldwide, up 19% year over year

Evan Spiegel - Snap chief executive officer
Courtesy of Snap

Snap, the parent company of Snapchat, fell just short of Wall Street revenue expectations for the third quarter — which were already lowered — reporting a sales increase of 6%, its slowest growth since going public.

The company posted sales of $1.128 billion for Q3 and adjusted net income of 8 cents/share. Wall Street analysts on average expected $1.14 billion in revenue and an adjusted net loss of 1 cent/share, per financial data provider Refinitiv. Net loss was $360 million, including restructuring charges of $155 million, compared with a net loss of $72 million in the prior-year quarter. In late August, Snap laid off 20% of its workforce, nearly 1,300 employees, and announced the shutdown of several initiatives, including ending Snapchat original series.

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Snap stock dropped as much as 27% in after-hours trading on the top-line miss.

The company previously disclosed that revenue in Q3 through Aug. 29 was up about 8% year-over-year, well below prior expectations, but otherwise had not released guidance for the quarter. Snap did not provide financial guidance for Q4 “given uncertainties related to the operating environment.”

Snapchat’s user growth outpaced revenue growth. The app’s average daily active users in Q3 hit 363 million, up 16 million from 347 million in the prior quarter and up 19% year over year. In addition, the company said Snapchat+, its $3.99/month subscription service for exclusive, experimental and prerelease features, had more than 1.5 million paying subscribers in Q3 (after topping 1 million as of Aug. 15) and is now offered in over 170 countries.

The company expects to reach approximately 375 million daily active users on Snapchat in Q4, and said that so far in the fourth quarter it has seen revenue growth of approximately 9% year-over-year.

In a worrisome sign, Snap said total time spent watching content on Snapchat in the U.S. decreased 5% year over year, which it attributed to lower engagement with Friend Stories (despite an increase in time spent with Discover and Spotlight).

“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,” Snap CEO Evan Spiegel said in prepared remarks. Snapchat’s DAU growth “continues to expand our long-term opportunity as we navigate this volatile macroeconomic environment.”

“Our business continued to face significant headwinds in the third quarter,” Snap said in its Q3 investor letter, citing “elevated inflation, increasing interest rates and heightened geopolitical tensions.”

“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,” Snap said in the letter.

Amid the macroeconomic turmoil, Snap has been dealing with the exit of two top ad execs — chief business officer Jeremi Gorman and VP of sales Peter Naylor — who joined Netflix this summer to lead its ad business. In August, Snap named Jerry Hunter, previously SVP of engineering, to the position of COO.

With Snap largely exiting the original content business, the company said it’s focusing on content from media partners and creators. Over the years, Snap had funded dozens of original series for the Discover section of the Snapchat app, including shows featuring Charli and Dixie D’Amelio, Megan Thee Stallion, Stephen Curry, Ryan Reynolds, Simone Biles, Will Smith and Addison Rae.

Snap previously said its layoffs and cost-cutting steps would save $500 million in cash expenses on an annualized basis, including $50 million on Snapchat originals, relative to Q2 2022, according to the company.

In reporting Q3 earnings, Snap announced that its board had authorized a stock repurchase program of up to $500 million of its Class A common stock for the next 12 months, a step to try to boost the company’s stock price.

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