Snap Learns Not to Guesstimate Revenue Growth

Evan Spiegel certainly can’t complain that the market doesn’t listen to what he says. The Snap CEO’s warning on Monday about a worse-than-expected deterioration in second-quarter conditions brought down tech stocks across the board today, led by a 43% drop in Snap’s price. Is it heretical to suggest the market might be overreacting just a bit? It’s been evident for weeks, if not longer, that business conditions in the digital advertising market, among other sectors, are weakening. Just how weak they’ll get is the question. But Snap didn’t answer that question on Monday. Instead, the only thing we really learned is that Snap isn’t very good at forecasting.

After all, if you look at what Snap executives said on April 21, when the company gave its outlook for the second quarter, they made clear they weren’t sure how bad things would get. Derek Andersen, Snap’s chief financial officer, told analysts that at that point, a month into the quarter, revenue was growing at about 30% year over year, but “we are concerned that the operating environment ahead could be even more challenging, leading to further campaign pauses or advertiser budget reductions.” As a result, “we believe that revenue guidance of 20% to 25%…is reasonable.” Sounds like they were guessing—and they guessed wrong!