Snap Warns Inflation Could Hurt Advertising Demand

Snap Inc, the parent company of Snapchat, warned on Thursday that supply-chain disruptions and inflation could continue to pull advertising demand.

The Santa Monica-based company emphasized that labor shortages and other economic challenges could pressure the firm’s revenue.

Correspondingly, it forecasted second-quarter revenue growth between 20.00% and 25.00% over the previous year. This projected growth rate is lower than the current level of 30.00%. Then, it estimated adjusted EBITDA to fall between breakeven and $50.00 million in the June quarter.

Meanwhile, Snap expected Q2 daily active users between 343.00 million and 345.00 million. This figure came in higher than the market consensus of 340.00 million.

Nevertheless, the caution came as the social media company admittedly reported a challenging first quarter.

Accordingly, the business posted a revenue of $1.06 billion, below the analysts’ expectation of $1.07 billion. Its overall revenue increased 38.00% year-over-year. However, Snap cited a more extensive net loss and less free cash flow on an annual basis during the quarter. It mentioned a loss of $0.02 per share, above the anticipated $0.01.

The firm blamed the issues during the quarter on macroeconomic conditions. These headwinds included advertisers who paused their campaigns after the Russian invasion of Ukraine.

Moreover, the online platform could continue to face a challenging operating environment. This situation would lead customers to pause their campaigns or reduce advertising budgets. At the same time, Snap faces conflict related to Apple’s 2021 privacy change, making it harder to target ads on iPhones.

The social networking firm said it made a tool to improve the issue. Regardless, the spending accounted for 90.00% of the company’s direct response to advertising revenue.

Snap Casts a Shadow on Meta, Twitter

Snap is the first of the major tech apps to report first-quarter earnings this quarter. Eventually, its downbeat results could cast a shadow over Facebook owner Meta Platforms and microblogging firm Twitter.

The social media giants also earn revenue by selling digital advertising, which took a hit on Apple’s changes. Investors now look ahead to their financial results next week.

Furthermore, Snap also grapples with the rise of the video-sharing app TikTok. The Chinese firm recently surpassed Snapchat as the most popular social media app among teens.

Consequently, TikTok is expected to generate more ad revenue than Snapchat and Twitter combined this year.

Shares of Snap slumped as much as 4.00% on Thursday’s after-hours trading. As traders digested its mixed results, it eventually recovered and rose 0.78% or 0.23 points to $29.65 per share.