Ooops, they did it again!
Snap (SNAP), owner of the Snapchat messaging app and the most important company in online advertising, posted another horrible, no good, very bad earnings report, and fell 25% after hours, again.
Not only does this signal the end of our way of life, but it also means that advertising is broken forever, the recession is coming faster and harder than we feared, Christmas is canceled, and your spouse doesn’t love you anymore.
So yep, as of the initial reaction after hours last night, the dominos started falling… SNAP down 26%, The Trade Desk (TTD) down 6%, Roku (ROKU) down 4%, Pinterest (PINS) down 8%.
OK, OK, you can wipe that look off your face.
No, Snapchat is not the most important advertising company in the country… and it doesn’t necessarily tell us much about the direction of advertising spending. But it does have one key advantage over every other meaningful online advertising company: It reports its quarterly results first. In the world of must-know-now and must-overreact-now, that means the market feels a compulsion to react to whatever SNAP says, mostly because nobody else has said anything yet.
SNAP has been a slow-moving disaster in many ways… they did report that over the past year they grew their revenue (for the first nine months of the year) from $2.82 billion in 2021 to $3.3 billion in 2022. That’s growth of 17%. But their stock-based compensation also grew by 17%. That would cause insane dilution, since they’ve paid $1.2 billion worth of compensation in the form of rapidly falling shares (that’s over the past four quarters)… but that’s OK, they borrowed a bunch of money and have been using some of that to buy back shares, helping to offset a portion of the share-based compensation, and they say they’re going to keep using the balance sheet in that manner. So instead of just paying their employees with actual money, they borrowed money to give their employees shares of a company that’s going down the tubes — and since they bought back most of those shares at much higher prices, they effectively paid those employees dramatically too much… but paradoxically, those employees also received too little.
After seeing the stock fall from $80 to $10, with no sign that the business is really recovering, I wonder whether those employees might rather get paid in actual money? ...