Snap warns of continued Covid-19 fallout for Q3 ad revenues

The company beat analyst expectations for revenue growth in the second quarter.

Snapchat: Europe brought in by far the biggest revenue growth
Snapchat: Europe brought in by far the biggest revenue growth

Snap Inc, the parent company of short video app Snapchat, reported a 17% year-on-year rise in ad revenue to $454m but is expecting a continued impact on ad revenue in the third quarter because of the coronavirus crisis.

The ad revenue increase was down slightly compared with the first quarter when Snap posted ad revenue of $462m, up 40%.

In a call with analysts about the second quarter financial results, chief financial officer Derek Andersen warned that operating conditions "may remain volatile" and events that usually drive advertising revenue in Q3 may be disrupted by Covid-19.

He said: "While we are cautiously optimistic that these trends could sustain over time, we are also conscious that operating conditions may remain volatile and that economic conditions could further deteriorate.

"For example, advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialise in the same way they have in prior years, including the back-to-school season, film release schedules and the operations of various sports leagues."

He added that the company expects current Q3 year-on-year revenue growth to be 32% through July.

The social-media company did not provide projections for the current Q3 period "given uncertainties related to the ongoing Covid-19 pandemic and the rapidly shifting macro conditions".

The company beat analyst expectations for revenue growth in the second quarter, reporting a 17% increase in quarterly revenue to $454.2m. While this was higher than expectations, it marks a slowdown from the $462m in revenue it reported in the first quarter, and the $561m in revenue from Q4 2019.

Europe brought in by far the biggest revenue growth of 30% year on year, followed by North America at 18%. Europe represented 17% of total revenue in Q2, as North America continues to account for the lion's share at 66%.

Snapchat's daily active users grew 17% to 238 million, slightly missing the 239 million it had estimated, demonstrating that sudden spikes in social-media app use during Covid-19 may be levelling off. In the second quarter, Snap’s net loss widened to $326m from $255.2m a year earlier.

Operating expenses expanded by 19% year on year to $307m, as more budget was allocated to research and development, and sales and marketing, but general and administrative costs were reduced from the prior quarter.

Yuval Ben-Itzhak, chief executive of Socialbakers, said: "Unlike its rivals Facebook, Instagram and TikTok, Snap has sailed through the first half of the year.

"Strong Q1 earnings and a solid Q2 cemented the platform's position as a social media platform to be reckoned with.

"The platform has not only been able to capitalise on the lockdown to grow user traffic and engagement, but it also recently announced updates such as augmented reality, Local Lenses and Bitmoji for games, which will likely attract both users and advertisers to the platform."

A version of this article first appeared on Campaign Asia-Pacific

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