- [Narrator] This was Snap's trajectory for most of 2021.
It's share value was steadily moving up
and the company was posting record revenue
and launching new initiatives.
- Off the grid and off the leash!
- [Narrator] By September, its stock price had skyrocketed
over 700% from its low point in 2020.
But in October, 2021, Snap's stock began to slip.
Since then, its share value has fallen over 80%
and in August, Snap announced-
- That they will cut 20% of their workforce.
- Discontinue investments in Snap Originals,
minis, games, and Pixy.
- [Narrator] So what went wrong?
It all started in April, 2021.
- Apple announced these changes to its privacy policy
that said apps now have to ask users
if they wanna be tracked.
- [Narrator] According to mobile app analytics provider,
Flurry, US users opt into tracking
only about 16% of the times
they encounter Apple's privacy prompt.
This makes it more difficult for advertisers
to target their ads at the right audience
and get information about how well their ads performed.
The impact of Apple's changes showed up six months later
when Snap posted revenue growth numbers that fell short
of what investors and analysts were expecting.
Its stock price dropped over 20%
in after hours trading that day.
Other social media companies like Facebook's parent, Meta,
also took a hit from Apple's privacy changes.
But Snap is a smaller company
that brings in less revenue to begin with.
Investors got a glimmer of hope in February
when Snap posted its first ever quarterly profit
as a public company.
But it was short lived because a few weeks later-
- The Russian invasion has begun.
- [Narrator] The first of a myriad of compounding factors
that contributed to Snap's continued decline in 2022.
Snap says it spent $5 million
helping its team members in Ukraine.
And as macroeconomic conditions deteriorated,
advertisers pulled back spending.
- Snapchat, while it might be a place
where advertisers are indeed putting their money
when they have money to spend,
it might be one of the things that's gonna get cut
when they're trying to pull back.
Meta, which owns Facebook and Instagram,
which have slightly older user bases,
it's gonna provide better returns generally for advertisers
because older people are gonna have more disposable income.
- [Narrator] Snap was also hit particularly hard
because the company relies primarily
on direct response advertising,
which are ads that are intended to get users
to immediately click on or buy something.
Snap says this type of advertising
is easy to turn on and off and to scale quickly
with high return on investment for advertisers.
- [Derek] But that works in the opposite way
when folks have to retrench their budgets,
and it's very easy to shrink down.
- [Narrator] Snap doesn't report its ad mix
but has said that a significant majority of its revenue
is direct response related.
This disruption in the digital ad market
plus Apple's privacy changes,
the broad effects of inflation,
and labor and supply chain issues,
all sent Snap over the edge.
- If it was one thing,
Snap might have been able to handle it.
But when you have all these different things happening
at once, Snap's just getting hit one thing after the other,
that's where the company started to struggle.
- [Narrator] In the spring, Snap continued adding staff
and launching new initiatives,
including a camera drone.
- [Announcer] This is Pixy, a pocket-sized, friendly,
free-flying camera.
- [Narrator] And a content push
for its Originals scripted videos.
- [Simone] This is "Daring Simone Biles."
- [Narrator] Despite its new products,
Snap's share value continued to tumble,
and in late May Snap told investors
that its revenue growth numbers were likely going to come in
lower than expected.
- Profit warnings are not something that companies
just give out willy-nilly,
and so the fact that they did this
was quite a big deal actually.
- [Narrator] Following this announcement,
Snap slowed hiring and spending.
The company had previously added staff at breakneck speed
during the pandemic,
growing its headcount by around 65% since the end of 2020.
Snap also brought on two executives
to specifically address the challenges
from Apple's privacy changes.
But analysts say they still expect Snap
to post a hefty net loss this quarter.
In August, Snap announced
it was shutting down future development
of its flying selfie drone, Pixy,
which it had launched less than four months earlier.
- And then two weeks later they announced
that they were gonna lay off 20% of their staff
and shut down many more projects
that weren't core to its business.
- [Narrator] Around that same time,
Netflix poached Snap's Chief Business Officer
and Vice President of Sales for the Americas
to kickstart its ad-supported subscription plan.
Snap declined to comment.
At the Code Conference in September,
Snap CEO responded to questions
about a possible takeover saying-
- I believe that the best way
to realize our long-term potential
is by building an independent company.
And I think while the stock price has gone up
and down over time,
we have slowly and steadily increased
the long-term value of our business.
- [Narrator] Looking ahead, Snap says
it expects the cost-cutting measures
to reduce the company's annual costs by around $500 million.
Snap says it's also working to diversify its ad business
by monetizing features like Spotlight,
which tries to appeal to content creators.
Snap says it's also working to monetize My Places,
which offers users personalized recommendations
of places to eat and visit.
The company also launched Snapchat Plus,
a subscription service that gives users
early and exclusive access to features for 3.99 a month.
- Analysts, investors, myself,
we're all watching to see,
is the digital ad business recovering?
Are they diversifying their business?
If something happens again to the digital ad market,
will it not affect them as much in the future?
- [Narrator] Snap has been through difficult times before.
The question again is whether it can snap back.