Customers stop ad campaigns
Worries of war weigh on Snapchat
04/22/2022, 03:05 am
Snapchat became popular with photos that disappear by themselves, and the group is now increasingly focusing on augmented reality applications. The deal seems to have little to do with the war in Ukraine. But the platform lives on the money from advertisers – and many of them put the brakes on costs after the Russian invasion.
Worries about the economic consequences of the Russian war in Ukraine are having an impact on the advertising business of the Snapchat photo app. The past quarter presented the US company with greater challenges than expected, said the head of the parent company Snap, Evan Spiegel, on Thursday (local time).
“We believe that the war in Ukraine had significant consequences,” said chief financial officer Derek Andersen. Immediately after the Russian invasion on February 24, many advertisers stopped their advertising campaigns. Most of them came back after ten days – but the pace of growth slowed down year-on-year. Among other things, advertisers were concerned about geopolitical risks due to the war in Ukraine. Fears of inflation are also a factor.
Snap posted a 38 percent increase in revenue to $1.06 billion in the first quarter. The bottom line was a loss of $359.6 million after being in the red from nearly $287 million a year earlier. That surge comes from a $92 million valuation loss on an investment, according to Snap. Snap spent five million dollars to support employees affected by the Ukraine war. In the final quarter of 2021 before that, the service had reported its first quarterly profit. The number of daily active users rose within three months from 319 to 332 million – and thus slightly more than analysts had expected. 84 million of them come from Europe – two million more than in the final quarter of 2021.
Share on a roller coaster ride
Snapchat was primarily known for images that disappeared on their own, but are now working, among other things, on being successful as a platform for shopping and media content. In particular, Snap relies on what is known as augmented reality (AR). The technology integrates digital content on the screen with the real environment. Snapchat, for example, allows shoes or cosmetics to be tried out virtually – and takes money from the companies for this. On average, more than 250 million users use various AR applications every day, said Spiegel.
In after-hours trading, the share went on a roller coaster ride: the initially significant price losses were followed by an increase of around eight percent, which then melted again. Analysts had expected a little more sales, among other things. In the current quarter, sales have so far been 30 percent above the previous year’s value – but Snap fears further cuts in advertising budgets and forecasts an increase of only 20 to 25 percent for the quarter. The development of the business is more difficult to predict than ever in recent times, said CFO Andersen.