Snap Inc. reported disappointing quarterly revenue figures on Thursday, falling short of analyst expectations due to modifications made to its advertising platform that negatively impacted ad demand. The company cautioned that its upcoming quarterly results may not meet Wall Street’s predictions.
In after-market trading, Snap’s shares plummeted by 19 percent.
Headquartered in Santa Monica, California, Snap, the parent company of the photo messaging application Snapchat, has been noted for its ability to innovate and set trends in social media. However, investors have raised concerns regarding the company’s capability to convert its investments in emerging technologies, such as augmented reality (AR), into significant revenue growth.
Although Snap did not provide official financial guidance, internal projections for the second quarter suggest a revenue target of $1.04 billion (approximately Rs. 8,502 crore), reflecting a 6 percent decrease year-over-year. This forecast falls short of analyst expectations, which were set at $1.13 billion (around Rs. 9,239 crore), based on data from Refinitiv.
In a communication to investors, Snap outlined its commitment to enhancing the relevance of advertisements displayed to users and simplifying user interactions with Snapchat ads.
The company indicated that these changes have led to a decrease in engagement for a small number of its largest advertisers, noting a decline in user interactions, such as taps on ads.
Snap acknowledged that adjustments to its advertising systems would require time before resulting in improved ad performance.
During an earnings conference call, Snap’s Chief Executive Evan Spiegel expressed optimism, stating, “We are optimistic that our ad platform improvements are laying the foundation for future growth.”
In contrast, the tech giants Alphabet and Meta Platforms, which dominate the digital advertising landscape, reported positive first-quarter earnings as brands leaned towards their extensive consumer reach and robust advertising tools.
Snap’s revenue for the first quarter ending March 31 reached $989 million (approximately Rs. 8,086 crore), a decline from $1.06 billion (about Rs. 8,667 crore) reported in the same quarter last year, and below analyst predictions of $1.04 billion.
According to Jasmine Enberg, a principal analyst at Insider Intelligence, Snap’s revenue drop highlights significant challenges facing the company. “Snapchat users primarily use the app for messaging, and messaging apps are notoriously difficult to monetize,” she commented.
Additionally, Snap recorded a net loss of $329 million (around Rs. 2,689 crore) for the quarter, an improvement from the net loss of $360 million (approximately Rs. 2,943 crore) reported during the same period last year.
The company continues to invest in both AR and artificial intelligence, and it recently broadened access to its chatbot, My AI, to all global Snapchat users.
During a recent annual event gathering content creators, advertisers, and partners, Snap introduced new capabilities for My AI, including responding to user messages with entirely AI-generated images.
Spiegel mentioned that the company is also in the experimental phase of integrating sponsored links in text generated by My AI.
Snapchat’s daily active users increased by 15 percent year-over-year to reach 383 million, aligning with Wall Street’s expectations. The company anticipates this number will rise to between 394 million and 395 million daily active users in the second quarter.
Similarly, Pinterest Inc. projected second-quarter revenue that fell below market expectations, resulting in a 13 percent decline in its shares during after-hours trading.
On the same day, Snap and Pinterest collectively saw their stock market valuation decrease by over $4 billion (approximately Rs. 32,702 crore) following the release of their financial results.
© Thomson Reuters 2023
