Snapchat's Stock Crashed After They Lowered Revenue and EBITDA Guidance
Summary of Snapchat's Presentation at JP Morgan's Global Tech, Media and Communications Conference
Snapchat’s stock price dropped 43% following its presentation at JP Morgan’s 50th Annual Global Technology, Media and Communications Conference after Snapchat CEO Evan Spiegel gave an update on revenue and EBTDA. Evan warned that it’s likely revenue and EBITDA will be below the low end of their guidance due to a weakening economy for its advertising business.
Here is a summary of the presentation:
Snapchat is focusing on augment realty. Evan said that he believes the camera will be used a lot more for augmented realty over the next 10 years. He also believes the camera will be used a lot more in people’s lives than it is today.
When questioned from an analyst on the impact of the macro environment on Snapchat’s business, Evan’s answer spooked Wall St. He said that Snapchat’s revenue continues to grow year-over-year, but revenue and EBITDA are likely to come in below the low end our guidance. In this market environment, especially for tech, lowering guidance has been destroying market caps.
Evan mentioned the usual suspects as the cause for a declining revenue and EBITDA forecast – inflation, interest rates and supply chain issues.
Apple introduced new privacy changes in a recent iOS update that has made it harder for advertisers to track user behavior. This has had a major effect on tech companies like Facebook and Snapchat who rely on this data to target their customer’s ads to users more effectively.
Evan admitted that Snapchat and the whole industry has been affected by this change and Snapchat may never recover all signals.
Evan didn’t spend much time discussing the headwinds on their business and their reduced guidance, yet the stock price took such a big hit. Evan spent most of the time discussing the projects that Evan is working on for the future.
One innovation that Snapchat is working on is an AR developer platform. This will help developers build more engaging experiences in augmented realty like try-on for shopping and being able to be connected in the same environment with your friends while playing games.
The try-on for shopping is good for retailers because Evan says there are higher conversion rates for products when users are able to visualize themselves wearing the product.
Snapchat is seeing success with augmented realty for retailers. One example of this is with sunglasses. When users can experience themselves wearing a pair of sunglasses in augmented realty, there is a higher chance of purchase.
How does Snapchat make this happen? Here is what Snapchat CEO Evan Spiegel said:
“So we worked very hard with a company that we acquired to enable retailers to take their entire product catalog that’s full of all these 2D photos, and make those photographs work for try-on. And so now today, you can take 1 photo using your Snapchat camera and actually try on all sorts of different products and see how you look wearing [those]. So rather than looking at a picture of a model who looks totally different than you, you can see how you yourself would look in any garment.”
Evan also sees an opportunity with augmented realty in entertainment where you will be able to better picture yourself as the character from a movie, enabling you to better connect with the story.
Evan mentioned the differences between Snapchat and TikTok. He explained that the core of Snapchat’s business is communicating with family and close friends, meanwhile, the core of TikTok’s business is communicating with influencers or strangers. Therefore, the main engagement drivers of Snapchat are different than TikTok, but Snapchat’s engagement drivers overlap with TikTok on their Spotlight feature.
Snapchat, according to Evan, has less than 2% market share in digital advertising in the U.S. which gives them a lot of opportunity to capture.
ROI for customers is important so Evan says they must focus on this.
A cool new innovation that I learned Snapchat has is Pixy. Pixy is a free flying camera that can take off, follow you, orbit you, observe your surrounding area and land in the palm of your hand.
When asked what Snapchat will look like in 5 years, Evan responded that people will understand Snapchat as an augmented realty platform.