Snapchat failures revenue estimate, shares fall 30%

Snap (SNAP.N) failed to meet Wall Street’s expectations for quarterly revenue on Tuesday, as the company behind Snapchat continued to struggle against larger competitors in the digital advertising market. This resulted in a 30% decline in its shares.

Despite frequently having its features imitated by rivals, Snap has faced ongoing doubts from investors regarding its ability to compete with tech giants like Meta Platforms (META.O) and Alphabet (GOOGL.O), which possess more extensive data for targeted advertising.

In contrast, Meta experienced a 25% surge in advertising sales during the December quarter, while Google’s ad business grew by 11%, with a 16% increase in ad sales from YouTube during the same period.

Snap has failed to show that it can capitalize on a healthy advertising market that has largely remained resilient despite economic uncertainty, said Thomas Monteiro, a senior analyst at Investing.com.

“It hints that Snap’s concerns are not macroeconomic in nature but mainly internal,” he said.

During a conference call with analysts, LightShed Partners analyst Rich Greenfield questioned Snap CEO Evan Spiegel on whether the company was “fundamentally disadvantaged” compared to larger rivals.

Spiegel said he still believed “there’s enormous opportunity for us to continue to grow our business.”

That will involve focusing more on serving advertisers that seek to increase sales or generate website clicks from their ads, rather than simply promoting brand awareness, the company said.

“Obviously, we wish we were moving faster, but we’re working as hard as we can,” Spiegel said.

Revenue in the fourth quarter ended Dec. 31 was $1.36 billion, missing the consensus analyst estimate of $1.38 billion, according to LSEG data.

In 2023, the company’s total revenue remained steady at $4.6 billion compared to the previous year.

On Monday, Snap announced plans to lay off 10% of its workforce, equivalent to 528 employees, to allocate more resources towards the company’s long-term growth.

In a shareholder letter released on Tuesday, Snap revealed intentions to prioritize expanding Snapchat’s user base and investing in key markets such as North America and Europe to drive revenue growth.

While user numbers in North America remained unchanged in the fourth quarter, European users increased by just 4 million compared to the previous year.

CEO Evan Spiegel stated Snap’s focus would be on re-engaging previous Snapchat users and encouraging more frequent usage of the platform.

The fourth-quarter saw a total of 414 million daily active users, surpassing analyst expectations of 411.6 million.

However, the majority of user growth occurred outside of North America and Europe, where advertising revenue tends to be lower.

Snap said it expects daily active users will grow to 420 million and forecast revenue between $1.1 billion and $1.14 billion in the first quarter. Analysts were expecting $1.1 billion.

Shares of Snap plunged 33% to $11.72 in after-market trading following the results and the conference call.