Snap stock (NYSE:SNAP) experienced a significant decline on Tuesday as it provided Q3 guidance that fell below analysts’ expectations. The company is striving to compete with tech giants for advertising revenues, but challenges persist, leading to questions from analysts and investors about its strategy.
Snap (NYSE:SNAP), the company behind the popular Snapchat app, has amassed a vast user base with its playful photo filters and the introduction of an AI-powered chatbot capable of answering questions. However, achieving consistent revenue growth and catching up to rivals like Facebook-owner Meta Platforms (NASDAQ:META) has proven difficult.
Snap projected its third-quarter revenue to be in the range of $1.07 billion to $1.13 billion, which was below the top end of the guidance range that analysts were expecting ($1.13 billion). Additionally, while Wall Street anticipated 406.2 million daily active users in Q3, Snap estimated between 405 million to 406 million.
Following the earnings announcement, Snap’s shares plummeted 17% to $10.37 in after-market trading.
Earlier in the year, Snap implemented updates to its machine learning model to deliver more relevant promotions to users. This move resulted in a temporary reduction in actions taken by users on ads, such as tapping, for some of its largest advertisers. However, the company reported that the changes are now yielding positive results, with a more than 30% increase in purchase-related conversions compared to the first quarter.
Snap’s (NYSE:SNAP) efforts to improve its advertising capabilities have led to an expansion in the total number of advertisers on its platform. Nonetheless, this progress has not yet fully compensated for the lower ad demand from certain larger brands.
Despite these challenges, Snap managed to surpass revenue and user expectations for the second quarter. For the quarter ending June 30, the company reported revenue of $1.07 billion, beating analyst predictions of $1.05 billion. Additionally, the number of daily active users on Snapchat increased by 14% year-over-year to reach 397 million, surpassing Wall Street’s estimate of 394.8 million.
Furthermore, Snap’s AI-powered chatbot, My AI, launched in February, has been well-received, with over 150 million people sending more than 10 billion messages to the bot. The interactions with My AI provide valuable insights into user interests, leading to more targeted and relevant ads. As part of this effort, Snap has begun testing sponsored links within My AI’s responses.
In terms of financial performance, Snap’s (NYSE:SNAP) net loss for the second quarter was $377 million, representing an improvement compared to the net loss of $422 million during the same period the previous year.
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Author Faith Yakubu 
