Snap shares SNAP fell more than 10% in premarket trading on Thursday after the social media company reported third-quarter revenue and user numbers that missed Wall Street expectations, raising questions about the pace of its advertising recovery.
The company generated revenue of $1.72 billion in the quarter ended September 30, up 14% year over year but slightly below analysts’ estimates of $1.73 billion, according to FactSet.
Adjusted earnings came in at 3 cents per share, beating expectations for flat earnings.
Snap reported net income of $56 million, compared with a net loss of $104 million in the same period last year.
Operating cash flow increased 44% to $210 million, while free cash flow rose 76% to $164 million.
Despite the improvement in profitability, advertising growth and user engagement remained areas of concern for investors.
Snap advertising growth remains below expectations
Snap’s advertising revenue increased 4% year over year, below the 6% growth analysts had expected, according to Bloomberg.
The company relies heavily on advertising and has been introducing artificial intelligence tools to improve campaign performance and attract a larger share of advertiser spending.
CEO Evan Spiegel said advertisers were beginning to see the benefits of improvements to the company’s performance advertising products.
However, he acknowledged that advertising revenue growth remained below management’s ambitions.
The company is now focused on translating those improvements into broader advertiser adoption and more durable revenue growth.
Chief Commercial Officer Ronan Harris said direct-response advertising continued to grow strongly, supported by improved purchase outcomes.
However, upper-funnel brand advertising declined year over year.
Snap also reported 495 million daily active users for the quarter, compared with 493 million in the previous quarter and 477 million a year earlier.
The figure missed analyst expectations of approximately 499 million.
Management expects fourth-quarter revenue of between $1.95 billion and $1.985 billion, broadly around Wall Street’s expectations.
The company also forecasts adjusted EBITDA of $490 million to $525 million.
Snap bets on AI-powered Specs smart glasses
Snap is looking to its upcoming Specs smart glasses to strengthen its position in the consumer artificial intelligence market.
The augmented reality glasses are available for preorder at a starting price of $2,195, with shipments expected to begin later this year.
The product will be accompanied by Specs Intelligence, an AI-powered assistant designed to connect with users’ email, calendars, and other personal information to help manage everyday activities.
Spiegel said the company had received positive feedback from people experiencing Specs firsthand.
However, the product faces competition from Meta Platforms’ smart glasses, which currently lead the market.
While Meta’s glasses lack a display and offer fewer functions, their lighter and more conventional design could appeal to a broader group of consumers.
The high starting price of Specs and growing consumer and regulatory scrutiny of smart glasses could also affect adoption.
Snap said its paid subscriptions across Snapchat+, Memories Storage and Lens+ had exceeded 30 million.
Regulatory risks and analyst outlook weigh on shares
Snap also faces regulatory challenges related to youth safety and potential restrictions on social media use by teenagers.
The company warned that evolving regulations in the US and internationally could require product changes, increase compliance costs, and affect user growth and engagement.
Separately, Cantor Fitzgerald maintained a Neutral rating on Snap shares while lowering its price target to $5 from $6.
Snap’s shares have fallen 27% this year, reflecting investor concerns about advertising growth and the company’s ability to compete in the evolving AI market.
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
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