(Bloomberg) — Snap Inc. witnessed a massive decline in its shares by more than 30% following a disappointing holiday quarter’s revenue report, mainly due to the ongoing slowdown in the digital advertising industry. In the fourth quarter, the revenue only grew by 5% to $1.36 billion, falling short of the predicted $1.38 billion by analysts. The annual revenue growth remained stagnant, indicating a significantly challenging operational environment, according to a shareholder letter.
The drastic changes have led CEO Evan Spiegel to execute a substantial company-wide restructuring over the past couple of years, involving job cuts and the discontinuation of non-revenue or user growth related projects. Despite the recent layoffs, Snap foresees a loss in adjusted earnings before interest, tax, depreciation, and amortization falling between $55 million and $95 million in the current period, much higher than the expected $33 million loss projected by analysts.
Adjustments made by Apple Inc. to its privacy settings in 2021 significantly affected both Snap and Meta Platforms Inc., making it more difficult for advertisers to track iPhone users. While Meta Platforms Inc. rebounded with a 25% increase in sales in the fourth quarter, their most significant quarterly growth in two years, Snap is still in the recovery phase.
Snap has made significant changes to its core business to enhance ad targeting, measure its effectiveness, and expand direct-response advertising offerings. The company expressed encouragement regarding the progress made within its ad platform and the improved results for some advertising partners. However, it did acknowledge that the conflict in the Middle East reduced growth by around two percentage points in the fourth quarter.
Snapchat has implemented new revenue streams with varying levels of success. Its subscription offering, Snapchat+, has already acquired 7 million paying users with an annualized revenue run rate of $249 million, a unique accomplishment in the domain of social media companies that have primarily failed to monetize subscribers. Despite that, the company’s efforts to develop augmented reality offerings for retailers were deemed too complex and were shut down last year.
The company reported 414 million daily active users in the fourth quarter, exhibiting a 10% increase from the corresponding period the previous year. Nearly half of these users are located in established markets like North America and Europe, which are now the key focus areas for the company. This shift is notable for Snap, which has historically allocated resources to bolstering support for Android phones in emerging markets.
More than 800 million people globally use the Snapchat app every month, as per the company’s announcement. Snap anticipates revenue of $1.10 billion to $1.14 billion in the first quarter, marking a potential 15% increase from the previous year. This growth rate aligns with the average estimates of analysts, according to data compiled by Bloomberg.
In the fourth quarter, Snap reported a net loss of $248.7 million, compared to a loss of $287.6 million in the previous year, falling short of the $287 million average analyst estimate. Earnings per share stood at 8 cents compared to the 6 cents predicted by analysts. The company anticipates incurring costs ranging from $55 million to $75 million related to layoffs, with the majority of expenses expected in the first quarter.
(Updates with comments from shareholder letter) Most Read from Bloomberg Businessweek©2024 Bloomberg L.P.
