Snap shares are trading sharply lower after the company provided a deeply disappointing forecast for the September quarter.
It underscores that company is struggling to grow as it continues to invest in continue to invest in machine learning, AI and other new technologies.
For the June quarter, the social media company posted revenue of $1.068 billion, down 4% from a year ago, but about the Street consensus forecast at $1.05. On an adjusted basis, Snap (ticker: SNAP) lost 2 cents a share, while the Street had expected a loss of 4 cents a share. On a GAAP basis, Snap lost 24 cents a share in the quarter.
Snap said it now has 397 million daily active users, up 14% and a few million more than the Street had expected.
But the outlook fell well short of expectations, and the stock is down 19% to $10.12 in late trading.
For the third quarter, Snap projects revenue of $1.07 billion to $1.13 billion, or flat to down 5% from a year ago, which at the midpoint of the range is a little short of the Street consensus at $1.13 billion.
Worse, the company expects adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, to be a loss of between $50 million and $100 million in the quarter, widening from a loss of $38 billion in the June quarter, while the Street had expected a loss of just $2.4 million.
Costs are rising as the company tries to find new sources of growth.
Snap said it expects infrastructure costs per daily active user of between 79 and 84 cents a share in the quarter, reflecting ongoing investments in machine learning, AI and other infrastructure. In Q2, by comparison, infrastructure costs per daily active user were 70 cents, up from 58 cents a year earlier, and 59 cents in Q1.
In a letter to shareholders, Snap said that to return to a higher rate of revenue growth, the company is focused on investing in products to "sustain community growth and deepen engagement," while also investing in its direct-response ad business and "cultivating new sources of revenue."
The company also noted that operating expenses are down 8% from a year ago, with head count down 20% from the peak in last year's third quarter.
In the letter, Snap noted that revenue growth "remained challenged" in the June quarter, in part reflecting changes the company made in its advertising platform. Brand advertising was down 8% in the quarter, the company noted, while direct-response ads were off 7%. Adjusted gross margin fell seven percentage points in the quarter, to 54%.
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