Snap, the social messaging company, has recently experienced a surge in its share prices following reports of an internal CEO memo. The memo, sent by co-founder and CEO Evan Spiegel in September, hinted at the possibility of better-than-expected results for 2024. While this news may be encouraging for investors, it is essential to critically analyze the challenges Snap has faced and the potential obstacles it may encounter in its quest for growth.
According to the memo reported by The Verge, Spiegel predicted that Snap could reach over 475 million daily active users in 2024, surpassing analysts’ projections of 448 million. Moreover, the memo stated that the company’s advertising revenue growth for the same period could exceed 20%, outperforming consensus expectations of just over 14%. Additionally, Snap aimed for an adjusted EBITDA of $500 million by 2023, which, if achieved, would be a significant beat compared to current analyst forecasts of $250 million.
While these goals demonstrate a promising vision for Snap’s future, Bernstein analyst Mark Schilsky cautioned against the company sharing such ambitions in internal memos. Schilsky emphasized that disclosing aspirational goals could have negative repercussions for shareholders, urging management to exercise caution in their communication. In his Tech Specialists newsletter, he expressed his concern, stating, “Stop doing this! For the love of your shareholders stop putting out aspirational goals like this. I know this was an internal memo, but management must have known it was going to leak.”
Snap has had a challenging year, much like other social media platforms such as Meta and Pinterest. The implementation of Apple’s iOS privacy update in 2021 adversely impacted Snap’s ability to effectively track users for targeted advertising. Consequently, the company struggled to improve its online advertising system, hampering its revenue potential. Moreover, the digital advertising economy faced additional obstacles, including the Russia-Ukraine war and a general withdrawal of marketing by companies due to economic uncertainties.
Snap’s shares experienced a significant decline of more than 17% in July after the company provided guidance for the current quarter that fell short of analysts’ expectations. Despite the recent surge in share prices, Schilsky pointed out that expectations for Snap remain relatively low. Given the leaked internal memo and a rebounding digital ad market, investor sentiment may have experienced some positive shifts. Nevertheless, it remains to be seen how Snap will navigate these challenges and fulfill its ambitious growth projections.
Snap’s internal memo offers a glimpse into its aspirations and potential for future growth. However, it is important to approach these projections with caution, as there are numerous obstacles that the company must overcome. Improving its online advertising system, adapting to changing privacy regulations, and thriving amid economic uncertainties will undoubtedly be formidable tasks for Snap. As investors and stakeholders, it is crucial to monitor the company’s progress and evaluate its ability to turn its ambitious goals into tangible results. Only time will tell whether Snap can live up to its potential and deliver on its promises.