Snap shares fell more than 30% after hours Tuesday after its forecasts missed analysts’ expectations, even as the company reported a 5% increase in revenue. business, its second consecutive quarter of growth.
Snapchat’s parent company released first-quarter guidance estimating larger-than-expected losses compared to Wall Street expectations, prompting some analysts to suspect the company was spending more aggressively than expected. Last quarter, Snap declined to provide guidance due to uncertainty surrounding the war between Israel and Hamas.
Amplifying concerns, Meta, owner of Facebook and Instagram, announced last week that its profits had more than tripled.
“This is particularly problematic for the company after Meta reported such high numbers in the same quarter, as it suggests that Snap’s concerns are not macroeconomic in nature but primarily internal,” said analyst Thomas Monteiro main site of the financial site Investing.com.
Snap’s revenue for the quarter ended Dec. 31 was $1.36 billion, up from $1.3 billion a year ago but below Wall Street projections of $1.38 billion for Snap. Fourth-quarter net losses narrowed to $248 million from $288 million a year earlier.
Evan Spiegel, the company’s chief executive, said in a letter to investors on Tuesday that “2023 was a pivotal year for Snap, as we relentlessly focused on adding value to our community while scaling our business towards long-term growth.
On Monday, Snap laid off more than 500 workers, or about 10% of its global workforce, as part of a larger wave of targeted cuts by tech companies this year.
“While this decision has been painful and we will miss our friends and colleagues, we believe these changes are necessary to achieve our long-term goals” and manage expenses, Mr. Spiegel said in the letter.
Over the past year, Snap has shifted its business toward direct-response ads, which allow customers to click through to buy products. Mr Spiegel said the change in advertising platform suggested a decline in sales in the first half of the year. But, he added, the move would better position Snap’s advertising business for long-term growth.
Analysts, however, said the app may struggle to find traction with this model because users primarily use it to message each other and don’t always see ads.
Scott Kessler, an analyst at Third Bridge, said weak revenue growth in a quarter that included the holiday shopping period showed that Snap’s changes to the ad platform “are taking longer and costing -be more money than people expected.”
The company also highlighted on Tuesday the success of new services like Snapchat Plus, a subscription service available since July 2022 that costs $3.99 per month and which now has more than seven million paying users. And it says Snap Star, a creator program launching in early 2022, has lured many content creators to the platform with the promise of revenue from ads posted alongside their public Stories.
Snap’s user base continued to grow in the fourth quarter. There were 414 million daily active users for the quarter, an increase of 10 percent from last year. Monthly active users, typically disclosed once a year, increased by 8 percent and exceeded 800 million.
