Snap didn’t grow revenue in Q4, but there’s a very good reason

The news: Snap delivered its fourth-quarter earnings on Tuesday after markets closed, and gave a first peek at the health of social media platforms as a whole.

The results: The company behind Snapchat generated $1.3 billion in revenues versus an expectation of $1.31 billion. That’s close to flat over Q4 2021’s $1.298 billion.

• The platform had 375 million daily active users (DAUs), beating the expectation of 374.7 million. That represents a 17% year-over-year increase.
• Adjusted earnings per share were 14 cents, up from an expected 11 cents.
• In light of macroeconomic uncertainties, the company said it won’t provide guidance for the first quarter of 2023.

The problem: With many marketers pulling back, it’s a tough time to be Snap. Meta offers far greater reach with its many platforms, including Facebook, Instagram, and WhatsApp. At the same time, search advertising is closer tied to performance budgets—meaning many companies aren’t lowering their Google spending all that much.

• “Snap’s strong association with AR has made it especially difficult to navigate the headwinds,” said Insider Intelligence principal analyst Jasmine Enberg. “Snapchat users love it, but advertisers don’t understand it, and with fewer ad dollars to go around, they’ve been less willing to experiment on the platform.”
• The company was forced to let go of one in five employees—1,300 in all—in August. That involved killing Snap Originals, the unique short films the firm produced with celebrities and influencers, and its Pixy drone.

Our take: Snap’s free cash flow in Q4 was $78 million, roughly half of the $161 million it had in the same period the year prior.

Since Snap can’t compete on performance or brand awareness, innovation will be vital to get out of its difficult market position—but that’s difficult to do when growth is hard to come by and cash is getting tighter.

The final word: All that said, it's hard to count a platform out when it has such a loyal following of Gen Z users.