Snap CEO blames slow advertising business for stock underperformance

Snap (NYSE:SNAP) will focus on growing its advertising business and augmented reality offerings, CEO Evan Spiegel told employees in a note on Tuesday.

The Santa Monica-based company plans to introduce new ad placements driven by machine learning and automation, as well as invest in augmented reality and smart glasses, similar to initiatives by social media company Meta (META).

“You may be wondering why, with all of the progress we’ve made in our business over the last year, our share price performance has lagged the overall market. The answer is simple: our advertising business is growing slower than our competitors,” Spiegel said in the note titled 13 Years at Snap.

“The growth of our digital advertising business is one of the most important inputs to our long-term revenue potential, and investors are concerned that we aren’t growing faster,” he added.

The company is also experimenting with new ad placements like Sponsored Snaps and Promoted Places to help advertisers drive return on investment across Snapchat.

This strategic shift comes as the Snapchat app maker faces stiff competition from major social media platforms like Meta’s (META) Instagram and ByteDance’s (BDNCE) TikTok for ad revenue.

Snap (SNAP) will continue to invest in its machine learning engineering team and infrastructure and will focus on key product offerings like dynamic product ads, app objectives, target cost bidding, and value optimization.

Snap (SNAP) provided a weak current quarter forecast in its Q2 report, attributing it to a decline in advertising spend.

Shares of Snap (SNAP) fell ~48% so far this year. The stock gets a Seeking Alpha quant rating of Hold with a 2.77 score.