Snap Stock Investors Wake Up to a Familiar Headache — And a Quiet New Worry

Snap earnings nights now follow a routine. When the numbers are released, they appear to be in order on paper, but the stock still declines. It felt like another rerun on Wednesday after the bell rang. At $1.53 billion, revenue increased by 12%. The number of daily active users reached 483 million, exceeding the quiet expectations of the majority of analysts. The net loss shrank significantly. Nevertheless, the shares continued to decline into Thursday’s premarket session, down nearly 10% at one point, after falling nearly 6% during extended trading.

It appears that investors think the story should be easier than it is. Snap is obviously proud of the fact that it continues to grow its user base abroad, including in India, the Middle East, North Africa, and some regions of Asia Pacific. However, North America—where the real ad revenue resides—saw a sequential loss of roughly two million daily users. The region’s revenue growth slowed to just 2%. Observing the graph gives the impression that Wall Street is only evaluating Snap based on whether American advertisers are still present, rather than on the number of users. Most of them are showing up, but their wallets are getting thinner.

It didn’t help that the Perplexity deal fell through. The $400 million deal, which was announced in November of last year with the kind of fanfare that typically buys a company a few quarters of optimism, was intended to integrate Perplexity’s answer engine into Snapchat. It has now ended “amicably,” which in the tech world means that no one wants to discuss why. Snap’s Q2 forecast, which ranges from $1.52 billion to $1.55 billion, is predicated on the partnership contributing nothing. The message lands awkwardly outside the Santa Monica headquarters, where engineers had presumably been working toward something: a non-ad revenue stream, the kind activist investors had been pushing for, simply vanished.

The Middle East comes next. Snap estimated that the first-quarter ad revenue impact of the Iran conflict would be between $20 million and $25 million. It’s not disastrous, but it serves as a reminder that Snap’s global expansion—which the bulls adore—is closer to real conflict areas than the spreadsheets ever indicated. The operating environment in the area is expected to remain largely unchanged from March and April, according to management. Whether that is optimism or a coin toss disguised as advice is still up for debate.

When the company’s patience runs out, it does what businesses do. Approximately 1,000 jobs, or 16% of the workforce, are being eliminated, and 300 open positions are being closed. “AI-driven transformation,” which falls somewhere between strategy and apology, is the framing. The activist investor that has been pressuring Snap to tighten up, Irenic Capital Management, has succeeded in controlling expenses. According to CEO Evan Spiegel, the company is sticking to execution while continuing to fund Specs, the smart-glasses project that has been using actual funds for years without producing anything other than hardware demonstrations.

Morningstar gave the stock a “Very High” Uncertainty rating and lowered its price target from $9 to $7. Given a limited budget, advertisers continue to choose Meta’s Instagram, YouTube, and TikTok, despite Snap having the potential for a network effect, according to the almost gentle reasoning. It’s difficult to ignore the fact that Snap has been responding to this criticism—albeit in different ways—for almost ten years. Reggie Brown and Bobby Murphy were long gone from the day-to-day. Spiegel is still there, the kid from disappearing messages who has grown into a CEO protecting profits from consumers who no longer find the product innovative.

Earlier this year, Snapchat+ subscribers surpassed 25 million, and Lens+, Memories storage, and subscriptions all contributed to an 87% increase in other revenue to $285 million in Q1. There is a real shift away from relying solely on advertisements. No one on the call seemed willing to guarantee whether it scales quickly enough to be significant.