Shares of Snap Inc. (NYSE: SNAP) were down 25% on Friday, yet to recover from the beating they took a day ago after delivering rather disappointing results for the third quarter of 2021. Although adjusted earnings exceeded expectations, revenue fell short of projections, hurt by the impact of the iOS platform changes on the ad business. These headwinds are expected to continue in the upcoming quarter as well. Here are the most noteworthy points from the Q3 report:
Snap’s Q3 revenue increased 57% year-over-year to $1.06 billion but came below estimates, mainly due to the impact of iOS ad tracking changes and macroeconomic factors on its ad business. The company’s advertising business was hurt by the changes to iOS ad tracking rolled out by Apple (NASDAQ: AAPL) as well as various supply chain hindrances and labor shortages faced by its advertising partners due to the pandemic.
The company’s ad partners do not appear to be in a position to generate or support additional demand amid these challenges and they are likely to slow their marketing spend which in turn could impact advertising demand in the fourth quarter as well. For the fourth quarter of 2021, Snap expects revenue to range between $1.16-1.20 billion.
Apple privacy changes
The ad tracking changes rolled out by Apple on its iOS platform a few months ago has made it difficult for Snap’s advertising partners to measure and manage their ad campaigns for iOS. The SKAdNetwork (SKAN) which was introduced to help app-based advertisers measure their advertising on iOS appears to be somewhat unreliable on a standalone basis.
These changes have made it difficult for advertisers to understand the effect of their unique campaigns based on factors like the time spent viewing an ad. In addition, reporting delays continue to hinder campaign and creative management. Snap is investing heavily in professional content and video advertising to support its community and advertising partners.
In Q3, Snap’s daily active users (DAUs) grew 23% to 306 million. The company sees significant monetization opportunities for the near and medium term in North America and Europe where DAUs grew both on a year-over-year basis and sequentially. In North America, DAUs grew 7% YoY to 96 million while in Europe, it grew 11% to reach 80 million.
Snap is building on its momentum in the Rest of World geographies. In Q3, Rest of World DAUs grew 49% YoY to reach 130 million. Its Rest of World DAU comprises just 5% of the overall Rest of World smartphone population thereby presenting it with vast potential for long-term growth. For the fourth quarter of 2021, Snap expects DAUs to grow 19-20% YoY to 316-318 million.
Snap sees meaningful long-term revenue opportunity in augmented reality. The company has seen success in commerce by helping people try on clothing, beauty products and accessories with AR and it is working on driving further growth in this area. The company believes this AR try-on technology can drive higher return on ad spend for businesses and prove beneficial for brands.
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