Snap Inc. reported its earnings for the third quarter on Thursday and the company’s revenue failed to meet the expectations of analysts. This is a result of the privacy changes that Apple introduced earlier this year. This affected the company’s advertising business which makes a huge part of its revenue. The company’s stock fell 25 percent after it reported its earnings.
Snap Inc. adjusted earnings per share was 17 cents compared to the expectation of 8 cents that was expected. The company recorded revenue of $1.07 billion and failed to meet the $1.10 billion forecast by Refinitiv. Global daily active users (DAUs) managed to surpass StreetAccont’s forecast of 301.8 million. Global daily active users for the quarter stood at 306 million. The company’s average revenue per user (ARPU) fell below StreetAccount’s expectations. It recorded $3.49 as against the forecast of $3.67.
It is quite correct to say that the earnings recorded by Snap Inc. were expected because the company’s advertising business is a huge part of its revenue. Besides, the company’s CEO, after earnings for the second quarter was reported said that Apple’s consumer-friendly changes could pose a risk to its fourth-quarter earnings but it seemed that it hit the company earlier than it expected. While many companies had criticized Apple for changing its business model with its app tracking transparency (ATT) feature on its iPhones. Snap Inc., however, did not criticize the new privacy model. In fact, Snap’s CEO also lauded Apple’s 30 percent charge for in-app purchases too. “We really feel like Snapchat wouldn’t exist without the iPhone and without the amazing platform that Apple has created. In that sense, I’m not sure we have a choice about paying the 30 percent fee, and of course, we’re happy to do it in exchange for all the amazing technology that they provide us in terms of the software but also in terms of their hardware advancements”, CEO Evan Spiegel said.
Just a few months ago, Snapchat’s CEO Evan Speigel emphasized the company’s relationship with Apple and said that Apple has been a great partner. The CEO also lauded Apple for its latest iOS version that capitalizes on providing users with more privacy protections. “We’re really aligned with them on the changes they’re making to help protect privacy. And so far, the early investments we made starting almost 10 years ago to protect user privacy on our platform are really paying off”, he said. The CEO also mentioned that Apple’s privacy modifications have had an impact on Snapchat’s advertising business and that the company has been working assiduously to assist advertising clients to switch to Apple’s SKAdNetwork, which iPhone uses to measure the efficacy of their ads. “So far, that transition has gone smoothly for our business”, the CEO said.
The iPhone privacy settings took an impact on Snap’s advertising business earlier than the company had expected. The company had expected the fourth quarter to be when the effects of Apple’s privacy settings start to take effect. “While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” Snap’s CEO said.
He didn’t stop there. He also mentioned that the global supply chain interruptions and labour shortages have, in their own way, reduced the “short-term appetite to generate additional customer demand through advertising”. The company is already making forecasts for its fourth-quarter earnings. Its CFO, Derek Anderson warned that the company’s fourth-quarter revenue could fall between $1.16 billion and $1.20 billion. Already, this is below analysts expectations of $1.36 billion, according to Refinitiv. “Unfortunately, these changes are occurring during a season when our advertising partners would normally expect their supply chains to be operating at peak capacity, and at a time when we would otherwise expect peak advertising demand to drive peak contestation, and therefore peak pricing, in our auction”, he said.
Snap’s net loss was $72 million, compared to $200 million from the same period last year. “While it is difficult to predict the trajectory of these challenges, the growth of our audience, the adoption of our new products and platforms by our community, and the underlying efficacy of our advertising products for performance advertisers give us confidence in the future of our business and our ability to navigate this environment as we continue to invest in our long-term vision,” Snap’s CEO said.
Snap’s daily active users (DAUs) was up over 4 percent from 293 million that the company recorded in April and is up almost 23 percent from the 249 million daily active users that were recorded in the same period a year ago, according to StreetAccount.