Snap Inc. (NYSE:SNAP) drops 1.03% in pre trading session on Monday as it posted its worst quarterly revenue increase in history, citing a drop in advertising expenditure as a drag on earnings. At the open in New York, shares fell 28%, the highest since July.
The creator of the Snapchat app reported a 6% increase in third-quarter sales to $1.13 billion. According to Bloomberg forecasts, that was barely shy of analysts’ average estimate of $1.14 billion.
The social network firm spent the quarter downsizing and reorganizing its business, stating in August that it will reduce 20% of its personnel and eliminate initiatives that do not contribute to user or revenue growth, or to the company’s augmented reality ambitions. Snap made the modifications in reaction to falling revenue, which it ascribed to a slowdown in marketer spending.
Snap stated in its prepared remarks for investors that revenue growth “continues to be impacted by a number of factors they have noted throughout the past year, including platform policy changes, macroeconomic headwinds, and increased competition. They are finding that their advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs of capital.
Snapchat, which is popular among young people for sending disappearing messages and adding unique effects to videos, recorded 363 million daily active users in the third quarter, up 57 million from the previous year. This figure exceeded the 358.7 million projection. Nonetheless, Snap’s average revenue per user fell 11% to $3.11, falling short of the $3.19 average analyst expectation.
An analyst at Forrester, Kelsey Chickering said in an email that the face of an economic crisis, marketing teams are under pressure to explain the ROI of every single line item on their media plans, and as a result, they will concentrate spend to fewer, better channels and partners. Unfortunately for Snapchat, their percentage of ad expenditures is set to drop even further as advertisers turn to the most efficient and established platforms.
The corporation is pursuing initiatives that will increase revenue. According to Snap, its embryonic subscription business, Snapchat+, rose to 1.5 million users in the third quarter, who pay for early access to exclusive or pre-release features. The app developer has also invested in developing ad measurement capabilities on its platform.
This year, Snap and platforms like as Meta Platforms Inc.’s (NASDAQ: META) Facebook and Alphabet’s Inc. (NASDAQ: GOOGL) Google will compete for a smaller pool of advertising cash. Inflationary pressures are putting a strain on businesses and consumer spending. Meanwhile, new Apple Inc. (NASDAQ: AAPL) guidelines requiring all applications to obtain permission from smartphone users to be monitored online have made it more difficult for advertisers to evaluate and manage their ad campaigns.
