Snap forecasts first quarterly revenue loss, cites advertising ‘headwinds’
Snap is forecasting its first ever quarterly revenue decline, citing a flurry of changes to Snapchat’s advertising products that may be disruptive to the social media app’s business.
Revenue is projected to drop 2% to 10% in the first quarter from a year earlier, the company said in a statement. That’s below the average analyst estimate for growth of 1.48%.
Snap is making changes focused on its direct-response business — ads that prompt users to take an immediate action such as buying a product or signing up for an email list. That’s been a key piece of the company’s moneymaking operation, especially in recent quarters when economic uncertainty has led marketers to cut back on spending.
In the current period, Snap has seen a 7% decline in revenue compared with a year earlier, according to a letter to investors.
Snap fell as much as 16% in after-hours trading. The stock has lost almost two-thirds of its value in the 12 months through Tuesday’s close.
Snap and its competitors such as Meta Platforms’ Facebook and Alphabet’s Google are also still grappling with a change to iPhone privacy policies from Apple that made it more difficult to personalize and track the success of ads on their apps. Shares of Meta and Pinterest fell after Snap’s results.
In the fourth quarter, Snap saw revenue of $1.3 billion — flat from a year earlier, in line with the average analyst estimate compiled by Bloomberg. It was the company’s first-ever reported quarter of no growth.
Federal agencies are questioning Snapchat’s role in the spread and sale of fentanyl-laced pills as part of a broader probe into the opioid crisis.
The company posted a net loss of $288.5 million, or 18 cents a share, including $34 million in charges from its workforce restructuring. That compared with a profit of $23 million, or one cent, a year earlier.
Snap ended the fourth quarter with 375 million daily users, for a 17% increase. In the first three months of the year, the company estimates that 382 million to 384 million people will use its platform daily.
Snap has become a bellwether for other digital advertising companies. Last year, it was the first to raise concerns about the slowdown in marketer spending online and to fire a significant number of employees — 20% of its workforce — to cut costs in the face of falling revenue.
The company has spent the last two quarters refocusing the organization, cutting projects that don’t contribute to user and revenue growth.
In the first quarter, Snap expects the environment to “remain challenging as we expect the headwinds we have faced over the past year to persist.”
Investors will get additional information about the state of the digital ad market when Meta and Alphabet report earnings later this week.