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Snap shares fell more than 30% in after-hours trading Tuesday after quarterly revenue growth fell short of Wall Street expectations as it continues to struggle to recover from a downturn in digital advertising.
Compared to dominant, deep-pocketed rivals like Meta, the smaller Los Angeles-based social media platform has struggled to recover from a digital advertising slump that began in 2022, when tough macroeconomic conditions forced marketers to tighten the belt. It was also among the hardest hit by privacy changes Apple introduced in 2021, which upended how brands target advertising and measure their effectiveness.
A day after announcing sweeping layoffs, Snap said its revenue rose 5% to $1.36 billion in the fourth quarter, below expectations for a rise to $1.38 billion. This reflects “a challenging operating environment,” it said in a letter to investors.
In its letter, Snap says it has made progress in using machine learning to increase advertising performance for brands and has succeeded in increasing the number of small and medium-sized advertisers in particular.
However, “the onset of conflict in the Middle East was estimated to have hindered year-over-year growth by approximately 2 percentage points” in the fourth quarter.
Net losses narrowed to $248 million from $288 million a year earlier, compared to consensus estimates of a decline to $277 million.
In the current quarter, the forecast for revenue was between $1.095 billion and $1.135 billion, or growth of 11 percent to 15 percent. Current consensus revenue estimates stand at $1.12 billion, according to S&P Capital IQ.
“We are shifting our focus more towards growing users and strengthening engagement in our most highly monetizable geographies, including North America and Europe,” the letter to investors reads.
The results contrast dramatically with those of Meta, whose shares jumped 20% last week after beating revenue and earnings expectations and announcing its first quarterly dividend of 50 cents a share.
Snap on Monday said it would cut its headcount by about 10%, or more than 500 employees. He said he is expected to incur pretax charges of $55 million-$75 million, primarily severance pay and related costs, primarily in the first quarter.