Snap knows it can do better. The company reported earnings results for the second quarter of 2022 this afternoon, and the numbers show a company that continues to grow its users and revenue, but at a much slower pace than it used to.
“Our second quarter financial results do not reflect the scale of our ambition,” the company wrote in a note to investors. “We are not satisfied with the results we deliver.”
The message was part of a rallying cry to investors that essentially says: hold on, we’re working on it. To turn the tide, Snap promises to “recalibrate” its people, goals and investments. And, in a rousing move, the company said it had signed Snap co-founders Evan Spiegel and Bobby Murphy, the company’s CEO and CTO, to stay for another four years, until the end of 2026.
Spiegel and Murphy are paid $1 a year with no additional equity. However, they will be boosted with the promise of a stock split if Snap’s stock price reaches $40 within the next 10 years, up from its current value of about $16. Snap says the split would allow Spiegel and Murphy to -sell voting shares of Snap, allowing them to keep their voting shares and retain control of the company.
This battle cry is not because Snap is falling apart. The company had second-quarter revenue of $1.11 billion, up from $982 million in 2021, and added 15 million more users, bringing it to 347 million.
The problem for Snap is that it is simultaneously coping with a shaky economic environment and the fallout from an ad market that was rocked by Apple last year when the company drastically curtailed the type of user tracking advertisers have long relied on. “Changes in platform policies have rocked the standards of the ad industry,” Snap wrote. As a result, Snap’s revenue growth has slowed and net income has fallen to a loss of $422 million, after a loss of $152 million in the second quarter of last year.
Snap is now in the process of tackling the advertising pieces and finding other means of revenue growth. The company is trying to improve its own ad effectiveness metrics and personalization options. It is also looking for new revenue streams such as the recently launched Power User subscription service Snapchat Plus. The service already seems to have some success. Analytics firm Sensor Tower found that in-app spend has increased 136x in the three weeks since launch compared to the previous three weeks, reaching $6 million in purchases.
There will likely be bigger disruptions within Snap as it tries to flip its performance. The company warns twice in its letter that it will reduce its workforce, adjust its goals and re-evaluate its spending. However, two things that remain off the chopping block are investing in AR and growing the Snapchat community.
Despite all this, Snap is warning investors not to expect immediate improvements. It offers no guidance for the third quarter and says existing sales are stable year over year.
“We think it will probably be some time before we see significant improvements,” the company wrote.
Snap’s results may also signal problems for Meta, which will report its Q2 earnings next week. In recent weeks, the company’s leadership warned of “serious times” and “fierce” headwinds, as its hiring plans for the year were scrapped. The company is rapidly revamping both Instagram and Facebook to better compete with TikTok and maintain user interest, while also addressing the same advertising issues Snap faces — just on a much larger scale.