Snap Inc. shares plunged more than 30% after the parent company of the Snapchat app reported disappointing revenue in the holiday quarter as it continues to reel from a slump in the digital advertising market.
In the fourth quarter, revenue increased 5% to $1.36 billion, missing analysts’ average projection of $1.38 billion. For the full year, revenue growth was flat, “reflecting a challenging operating environment,” according to a letter to shareholders.
Chief Executive Officer Evan Spiegel has been leading the company through a broad restructuring over the past two years, cutting jobs and ending projects that don’t boost revenue or user growth. On Monday, the Santa Monica, California-based company said it’s cutting its workforce by an additional 10% this year in an effort to reduce hierarchy and promote in-person collaboration.
But despite the recent round of layoffs, Snap projected a loss in adjusted earnings before interest, tax, depreciation and amortization of $55 million to $95 million in the current period, far beyond the loss of $33 million analysts’ were expecting.
Snap and Meta Platforms Inc. were badly affected by changes Apple Inc. made in 2021 to its privacy settings, which made it harder for advertisers to track iPhone users. Meta has bounced back, posting a 25% gain in sales in the fourth quarter, its biggest quarterly increase in two years, while Snap is still recovering.
Snap has overhauled its core business to improve ad targeting and measuring its effectiveness, while also increasing its direct-response advertising offerings.
In a letter to shareholders, the company said it was “encouraged by the progress we are making with our ad platform,” and improved results for some advertising partners, but acknowledged that the conflict in the Middle East was a “headwind,” knocking off about two percentage points of growth in the fourth quarter.
Snap has tried adding new revenue streams to varying degrees of success. Its subscription offering, Snapchat+, has already amassed 7 million paying users with an annualized revenue run rate of $249 million – a unique feat among social media companies that have mostly failed to monetize subscribers. But its efforts to build augmented reality offerings for retailers was deemed too complex and shuttered last year.
Snapchat had 414 million daily active users in the fourth quarter, up 10% from the same period last year. Almost half of those are in established markets like North America and Europe — regions the company says it will now prioritize. It’s a notable pivot for Snap, which has spent years committing resources to building support for Android phones in emerging markets.
“We are shifting more of our focus toward user growth and deepening engagement in our most highly monetizable geographies,” Spiegel said in the letter. “Focusing on these initiatives will help us increase daily active usage of Snapchat, deepen content engagement, improve performance for advertisers, and ultimately accelerate revenue growth and drive increased free cash flow.”
More than 800 million people use the app globally every month, the company said.
Snap projected revenue of $1.10 billion to $1.14 billion in the first quarter, up as much as 15% from a year earlier. The pace of growth is in line with analysts’ average estimates, according to data compiled by Bloomberg
In the fourth quarter, Snap posted a net loss of $248.7 million, compared with a loss of $287.6 million a year ago and less than the $287 million average analyst estimate. Earnings per share were 8 cents, compared with analyst estimates of 6 cents.
The company will incur costs between $55 million and $75 million related to layoffs, the majority of which will be spent in the first quarter.
