1/31/2023: Snap Missed Q4 Revenue Estimates

Stock tanked after hours

Snap reported Q4 2022 earnings after market close today. Revenue was $1.3B vs. $1.31B expected. EPS was $0.14 vs. $0.11 expected. ARPU (average revenue per user) was $3.47 vs. $3.49 expected. Snap wouldn’t give revenue guidance for 2023 but said in the investor letter that its “internal forecast” assumes a 2-10% revenue decline for 2023. SNAP 0.00 stock tanked after the earnings release.

Snap was still growing their user base with DAU growing 17% YoY in Q4. But it has become harder to monetize their users with brand advertising declining 11% YoY and performance advertising revenue increasing a modest 4% YoY. The company attributed the weak metrics to the macroeconomy, Apple privacy changes and competition, which also applies to Google and Facebook. Interestingly, they added $500K subscribers to their Snapchat+ service, reaching $2M+ subscribers in total. But it’s hard to move the needle with the subscription service. They are currently charging $3.99 per month or ~$12 a quarter. If 2% of their user base ultimately has the subscription, that’s $375M*0.02*12 = $90M a quarter, which is only ~7% of their current revenue. Unless Snap can raise the subscription price significantly or can convert a large percentage of their users into subscribers, digital advertising will remain their main business. 

Peter Yang @petergyang

Mark Zuckerberg on middle managers

With Snap’s Q4 results, I don’t have very high expectations for Meta’s earnings tomorrow. But investors seem to be more concerned about their expenses than their top line growth. If Meta’s revenue declined again in Q4 2022, I wonder if there will be more layoffs. Zuck seems to be very concerned about the deep layers of middle managers as shown in the tweet above. I don’t know if middle managers are the real problem here though. It looks more like a symptom of a deeper issue. Namely, how Meta’s incentive system rewards empire building. But it appears that changes are coming and more Metamates will lose their jobs. I hope the top management will at least cut their own bonus deeply to show some respect for employees who lose jobs due to their decisions based on overly optimistic outlook.