10/20/2022: Snap's ARPU Dropped 11%

Stock crashed 25% after the report.

Snap reported Q3 earnings today. Results are quite concerning.Q3 DAU is up 19% YoY. But Q3 revenue is only up 6% and ARPU (average revenue per user) is down 11%. In comparison, Q2 revenue was up 13% YoY and ARPU was down 4% while DAU was up 18%. The deceleration on revenue and ARPU is a bit shocking. Snap management also didn’t provide the financial guidance for Q4 citing uncertainty of the macro economy and slowing advertiser spending. SNAP 0.00 stock crashed 25+% after the report was out.

If Snap’s earnings are representative of the overall social media sector, Facebook/Meta is in big trouble. Social media companies like Meta, Twitter and Snap’s business have been plagued by Apple privacy changes, competition from Tik Tok and slowing digital ad spending due to inflation and other macroeconomic challenges. Unlike Meta, Snap is still growing their DAU ~20% a year. Assuming, Meta’s DAU is flat for Q3, we might be seeing a double digit revenue decline for Meta’s Q3 as Snap’s ARPU went down by 11%. In addition, North America accounts for 70% of Snap’s revenue while North America only represents about 46% of Meta’s revenue. With the super strong US dollar, Meta’s international revenue will probably be hit harder than their North America counterpart. Meta’s Q3 numbers are probably going to be quite brutal. We will get the whole picture next Wednesday when they report. If their Q3 result is as bad as expected, are they still going to spend $10B a year on metaverse, which is still many years from mass adoption?