Snap revenue rises 5%, after change in ad strategy

Snap shifted its advertising strategy to focus on direct response ads last year, resulting in lower sales during the first half of 2023.

Snap’s revenue saw a 5% increase for the final quarter of last year, reaching $1.36 billion.

Despite this growth, the figure fell slightly below Wall Street analysts’ forecasts, who had anticipated $1.38 billion for Snapchat’s parent company.

However, Q4 saw net losses narrowed to $248 million, showing improvement from the $288 million reported in the same period the previous year.

Lay offs. The disappointing results come after Snap laid off approximately 10% of its global workforce earlier this week. Evan Spiegel, Snap CEO, said the decision was “painful” but “necessary to achieve our long-term goals.”

Ad strategy change. Snap changed its advertising strategy last year to focus more on direct response ads, which let users click and buy products directly from the app. This shift initially led to lower sales in the first half of the year, according to Spiegel, but will benefit Snap’s advertising business in the long run.

Takeaways. Snap has shared additional insights into its 2023 performance:

• Daily Active Users increased 10% year-over-year to 414 million.
• Fourth quarter revenue increased 5% year-over-year to $1,361 million.
• Fourth quarter operating cash flow of $165 million and Free Cash Flow of $111 million.

Looking ahead. Snapchat predicts its daily active users to reach 420 million in the first quarter of this year, with revenue expected to increase between 11% and 15%.

What Snap is saying. Evan Spiegel, Snap CEO, said in a statement:

• “2023 was a pivotal year for Snap, as we transformed our advertising business and continued to expand our global community, reaching 414 million daily active users.”
• “Snapchat enhances relationships with friends, family, and the world, and this unique value proposition has provided a strong foundation to build our business for long-term growth.”

Why we care. Following a performance below Wall Street expectations, Snapchat may present a unique opportunity for advertisers this quarter. The potential dip in advertiser interest could result in reduced competition, making ad placements more cost-effective. This, in turn, offers advertisers the chance for a higher return on ad spend. However, it could also be a riskier investment for advertisers in comparison to rival platforms like Meta.