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    Home » Opinion: Snap's excuses don't work as Meta and Google continue to boom
    Financial Market

    Opinion: Snap's excuses don't work as Meta and Google continue to boom

    ZEMS BLOGBy ZEMS BLOGFebruary 7, 2024No Comments3 Mins Read
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    Snap Inc.'s disappointing quarterly results and outlook, plus one recurring excuse, don't add up when compared to stronger results from other companies that also rely on Internet advertising, such as Meta Platforms and Alphabet.

    Tuesday, snap snap,
    +4.18%
    It reported a revenue loss for the fourth quarter, and gave a disappointing outlook for the first quarter, including an EBITDA loss much broader than Wall Street had expected. Its shares fell 32.4% in after-hours trading, and this news comes a day after Snap announced plans to cut another 10% of its employees.

    Wall Street analysts were also concerned about its slowing growth rate, versus other companies that rely on Internet advertising. In the fourth quarter, Snap saw revenue growth of 5%, and said in its letter to investors that “the onset of the conflict in the Middle East was a headwind,” impacting 2 percentage points of revenue growth. Snap also said the Middle East was a headwind in the third quarter.

    Snap's revenue forecast of $1.095 billion to $1.135 billion for the first quarter suggests revenue growth of 11% to 15% year over year.

    By comparison, Meta said last week that it expects total first-quarter revenue of 2024 to range between $34.5 billion to $37 billion, with growth ranging from 20.63% to 29.37%, versus first-quarter revenue of $28.6 billion a year ago.

    Rich Greenfield, an analyst at LightShed Partners, asked Snap executives about Meta's META,
    -1.02%
    Expectations of 30% revenue growth this quarter, its sheer size and whether or not Meta's aggressive spending on machine learning and AI will be a limiting factor for Snap's growth.

    Read also: Meta stock's killer rally adds $200 billion to market cap – a historic amount.

    “We're not as big as some players, but I think there's tremendous opportunity for us to continue to grow our business.” Evan Spiegel, Snap's co-founder and CEO, said after touting Snap's 800 million user base. Historically, Snap has been a “brand-focused advertising company,” Spiegel noted.

    Snap is now focusing on more direct response advertising, which he described as a difficult shift for brand-oriented companies. “We're definitely playing catch-up here on the direct response side, but we're seeing evidence that it's working,” he said.

    The fourth quarter is typically heavier when it comes to advertising for Snap's brand, Jasmine Enberg, principal analyst at Insider Intelligence, said in an email. “Brands are more risk averse and therefore more likely to pause or slow spending in times of conflict or crisis. Snap is also a smaller and less important player for advertisers, so brand decline may be more pronounced there compared to larger platforms like Meta.”

    She added that while Snap is still working to improve its direct-response advertising business, it is difficult for it to hide the weakness of its brand advertising. She said the spending slowdown due to conflict in the Middle East is also “a reflection of larger problems within Snap's advertising business — a lack of scale and sophistication compared to its competitors.”

    Benchmark analyst Mark Zgotowicz said in Snap's earnings preview note to clients on Monday that the company still “lacks competitiveness” in its DR-stack (direct response program) and that he doesn't expect sustainable revenue catalysts to value the stock higher.

    This turned out to be an insightful comment, but investors are now stuck in wait-and-see mode, hoping that Snap will turn it around as it tries to navigate a more competitive AI advertising environment, which is being outpaced by larger rivals. Like meta and alphabet.

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