What is the Snap Is the Picture of Recessionary Tech

SNAP -39.08%▼ admittedly painted a very grim big picture Thursday, but investors might want to study the fine details.
After warning in late May that deteriorating macroeconomic conditions would likely cause select second-quarter results to come in below the low end of its guidance range—issued just a month earlier—Snap said Thursday that revenue increased just 13% in the period ended June 30, 7 percentage points below the low end of its April forecast.
Snap opted not to give specific guidance for revenue and adjusted earnings before interest, taxes, depreciation and amortization for the third quarter. It did say that, thus far in the period, revenue is roughly flat year-on-year, adding that visibility remains “incredibly challenging.” Its shares, which had shed three-quarters of their value over the last year heading into Thursday’s earnings report, plunged another 26% in after-hours trading.
To put Snap’s third quarter color into perspective, since its first full year as a public company in 2018 its year-over-year growth has averaged 50% across all quarterly reports. Its second-quarter growth was its weakest since the second quarter of 2020 at the once.
Against a widespread changing of the guard in tech, cycling out founders at the top of Amazon, Twitter and Pinterest, Snap is bucking the trend, announcing Thursday its co-founder Evan Spiegel would remain as chief executive at least until the beginning of 2027. That is at once reassuring and concerning. Execution risk with the current management team is real: There was the abysmal Android remodel, which temporarily caused users to drop; and more recently, Snap failed to predict the dramatic effect Apple’s targeting changes would have on its customers’ targeting abilities.
Snap also has shown a keen sense of what today’s social media users want. It was first to add Stories to its platform, for example—a format then copied by virtually all of its competitors. Still, unlike TikTok and Instagram, it has yet to show it can keep its users’ attention long enough to attract a lion’s share of ad dollars. SimilarWeb U.S. Android data show Snapchat users are spending less than half as much time on its app as on ByteDance’s TikTok and Meta’s Instagram, respectively.
In its shareholder letter Thursday, Snap admitted it would likely “take some time” before any significant improvements to its ad business would come to pass. Snap doesn’t report its ad mix, but color shared over the last two quarters implies about 70% are direct response—those intended to get users to immediately click on or buy something. They can more clearly demonstrate return on investment for advertisers but, in a recessionary market, such ads are often the first to go.
It is worth noting that Snap has been here before: its share price dipping well below $10 more than once since going public, only to rebound sharply. A bet on Snap in early 2019 would have earned a 12-fold return at its highs last year.
Patient investors should at least consider what Snap’s picture could look like with some long-term exposure.
Snapchat is an American multimedia instant messaging app and service developed by Snap Inc., originally Snapchat Inc. One of the principal features of Snapchat is that pictures and messages are usually only available for a short time before they become inaccessible to their recipients. The app has evolved from originally focusing on person-to-person photo sharing to presently featuring users' "Stories" of 24 hours of chronological content, along with "Discover", letting brands show ad-supported short-form content. It also allows users to keep photos in the "my eyes only" which lets them keep their photos in a password-protected space. It has also reportedly incorporated limited use of end-to-end encryption, with plans to broaden its use in the future.