Snap Stock Plummets More Than 25% After Missing Q3 Earnings Expectations

Snap Inc. shares plunged in after hours trading as much as 27% on Thursday after missing Wall Street revenue expectations. CEO Evan Spiegel blamed the miss on Apple's new privacy policies that disrupted the company's targeted digital advertising.

Snap recorded $1.07 billion in sales, missing analyst expectations of $1.2 billion.

Spiegel said Apple's iOS new ad tracking feature made it difficult for Snap advertisers to measure and manage ad campaigns. Spiegel also said Snap is working to build its own "flexible first-party tooling" to measure its customers' ad campaigns.

Earlier this year though, Spiegel told CNBC he felt the company was "well prepared" for upcoming changes to Apple's privacy policies and said he thought it could be "a good thing overall for consumers."

The ongoing global pandemic also threw a curveball to Snap's ad business. As advertisers across industries faced labor shortages and grappled with a weakened supply chain, they cut back on advertising costs. This in turn meant less ad dollars for Snapchat to stack.

"This (disruption) in turn reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply-constrained," Spiegel said. "The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable, and in the meantime we are focused on supporting our partners in this uncertain environment."

Following its earnings report Snap Inc. shares were down as much as 26%.

Snap reported daily active users of its Snapchat app totaled 306 million in Q3, up 23% from this time last year. This continues Snap's trend of growing its user base each quarter; the company reported it has recorded at least 20% growth in its user base in each of its last four consecutive quarterly reports.

Still, revenue this quarter was up 57% annually to roughly $1.1 billion. Snap cut down its net losses to $72 million, compared to roughly $200 million this time last year.

As of this quarter, Snapchat is 10 years old, aging out of startup status.

The company went public in 2017 with a $24 billion valuation. Spiegel said during Snap's Oct. 21 earnings call that the Snapchat app now reaches more than 500 million people worldwide.

Crucially the company did have more cash on hand this quarter. Snap's operating cash flow was out of the red this quarter, totaling $72 million compared to a negative $55 million in Q3 of last year.

Still, as it recognizes a decade of work growing its user base and revenue Snap still can't yet turn a profit and continues to compete for users with other social media platforms like TikTok and Instagram. Users spent less time making content on Snap's stories feature this year compared to Q3 2020 –Instagram operates a very similar feature that Snap competes with.

Spiegel keeps encouraging the company to push the limits of augmented reality software, betting investment in this emerging form of digital expression will bring a windfall of users and cash. This quarter nearly all of the company milestones Snap boasted about this quarter were focused on AR including the fact that five of its AR lenses accounted for 11 billion impressions in Q3.

"Augmented reality is one of our most exciting long-term opportunities because it is simultaneously very early in its technological development and already used by hundreds of millions of people," Spiegel noted. He said that over 200 million people engage with Snapchat's augmented reality features every day.

Update: This story has been updated to clarify Snap saw $72 million in net losses this year, not debt.