Snap knows it can do better. The company released its results for the second quarter of 2022 this afternoon, and the numbers show a company that continues to grow its users and revenue, albeit at a much slower pace than before.
“Our financial results for the second quarter 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 post was part of a rallying cry to investors that basically says Hold on tight, we’re working on it. To turn things around, Snap promises to “recalibrate” its hiring, goals and investments. And, in a more splashy move, the company said it had signed Snap co-founders Evan Spiegel and Bobby Murphy, the company’s CEO and CTO, to stay on for another four years, until the end of 2026.
Spiegel and Murphy will be paid $1 a year with no additional equity. They will, however, be incentivized by the promise of a stock split if Snap’s stock price reaches $40 in the next 10 years, from its current value of around $16. Snap says the split would allow Spiegel and Murphy to sell non-voting shares of Snap, allowing them to retain their voting shares and retain control of the company.
That rallying cry doesn’t come as Snap is collapsing. The company posted revenue of $1.11 billion in the second quarter, up from $982 million in 2021, and it added 15 million more users, bringing it to 347 million.
The problem for Snap is that it simultaneously faces an unstable economic environment and the fallout from an advertising market that was upended by Apple last year when the company dramatically limited the kind of user tracking advertisers counted for a long time. “The platform policy changes have upended more than a decade of advertising industry standards,” Snap writes. As a result, Snap’s revenue growth slowed and its net profit fell to a loss of $422 million from a loss of $152 million in the second quarter of last year.
Snap is now scrambling to pick up the advertising pieces and find other ways to grow revenue. The company is trying to improve its own ad effectiveness measurement tools and personalization options. He’s also looking for new revenue streams, like the new power user subscription service, Snapchat Plus. The service already seems to have some success. Analytics firm Sensor Tower found that in-app spending grew 136x in the three weeks after launch compared to the previous three weeks, reaching $6 million in purchases.
There will likely be bigger disruptions inside Snap as it tries to improve its performance. The company warns twice in its letter that it will cut hiring, adjust targets and reevaluate spending. Two things that remain on the sidelines, however, are investments in augmented reality and the growth of the Snapchat community.
Even with all that, Snap warns investors not to expect immediate improvements. It does not provide guidance for the third quarter and indicates that existing revenues are stable year-on-year.
“We believe it will likely take some time before we see significant improvements,” the company writes.
Snap’s results could also signal trouble ahead for Meta, which will report its second-quarter results next week. In recent weeks, company management has warned of “serious times” and “fierce” headwinds while scaling back hiring plans for the year. The company is rapidly revamping Instagram and Facebook to better compete with TikTok and keep users engaged, while addressing the same advertising issues that Snap faces — just on a much larger scale.