Snap (SNAP): Here are a few points to note if you have an eye on this social media stock

Shares of Snap Inc. (NYSE: SNAP ) was down 1% on Friday. The stock has fallen 81% this year. The general sentiment surrounding the stock is pessimistic due to concerns over macroeconomic issues, a slowdown in ad spending and the impact on the company’s revenue and profits. However, there are points of optimism regarding user growth and company engagement trends that remain encouraging.

Headwind

Snap’s revenue growth is slowing and losses are widening. For the third quarter of 2022, Snap’s revenue of $1.13 billion grew only 6% year-on-year compared to the double increase recorded in the first two quarters of this year.

While the company saw revenue rise on a YoY basis across all geographies during Q3, sequentially, only North America recorded an increase. Revenue from Europe fell 5%, while revenue from the Rest of the World remained flat.

Revenue growth was affected by platform policy changes, macroeconomic headwinds and increased competition. The company is also seeing a slowdown in digital advertising as inflationary pressures force businesses to reduce ad spending. This slowdown in advertising is a major problem for companies like Snap.

Snap expects revenue growth to slow through the fourth quarter of 2022 as well because Q4 has historically been dependent on advertising revenue. Therefore, the company expects YoY revenue growth to remain flat in Q4.

Snap also experienced a decline in average revenue per user (ARPU) in Q3. Global ARPU was down 11% YoY and the company recorded a single-digit decline in ARPU across all geographies during the quarter.

Snap’s widening losses are also a concern. Net loss in Q3 widened to $359.5 million from $72 million in the year-ago period. Loss per share was $0.22 versus $0.05 last year. On an adjusted basis, the company posted earnings of $0.08 per share but this was down 52% from the year-ago quarter.

Tailwinds

Snap has been able to maintain growth and user engagement even in this challenging environment, which is encouraging. In Q3, the company’s average daily active users (DAU) grew 19% YoY to 363 million. On a sequential basis, DAU was up 4%. During the quarter, DAUs increased sequentially and YoY across all geographies as well. For the fourth quarter, the company expects DAU to be approx. 375 million, which would represent a growth of 18% from last year’s period.

Snap also has significant opportunities in the augmented reality (AR) platform. There are more than 250 million people who engage with AR every day and this gives companies the opportunity to help businesses deliver immersive experiences and drive powerful results. There are a variety of digital experiences that can be made possible through AR that can help drive engagement and growth.

Click here to read the full transcript of Snap’s Q3 2022 earnings conference call