Snap’s revenue growth slowed and its losses ballooned in the third quarter as it undertakes a radical restructuring in the face of challenges around advertising targeting and a broader advertising slump.
The Los Angeles-based company’s revenues rose 6 per cent year-on-year to $1.13bn, slightly below analysts’ expectations for $1.14bn and the slowest pace of growth since it went public in 2017, according to an earnings release Thursday.
Net losses increased 400 per cent to $360mn, compared to $72mn in the prior year, roughly in line with expectations. This included $155mn in charges related to a drastic restructuring which includes laying off a fifth of its 6,500-strong workforce and slashing investment in initiatives including augmented reality glasses and video content production.
In a letter to investors, Snap, parent of camera and messaging app Snapchat, said advertisers were continuing to cut marketing budgets because of macroeconomic headwinds such as inflationary pressures and rising costs of capital. The company also blamed increased competition and challenges around Apple’s privacy changes that have made it harder for apps to target advertising and measure the success of campaigns.
Snap’s shares, which had already lost 77 per cent of their value in the year to date, fell more than 25 per cent in after-hours trading following the earnings release.
The bleak results for Snap, the first of the big tech groups to post earnings, suggested that other businesses reliant on advertising revenues could report similar pain in the coming weeks. Facebook parent Meta and Google parent Alphabet dropped 5 and 3 per cent on the news respectively, while smaller social media rival Pinterest fell more than 7 per cent.
“While these results are far from our aspirations, we are using this period of reduced demand to pull forward and accelerate changes to our advertising platform and auction dynamics that we believe will deliver better results for our advertising partners over the long term,” Snap said.
While the company did not provide revenue or earnings guidance for the current quarter because of “uncertainties related to the operating environment”, it said revenue had grown 9 per cent in the quarter so far.
Snap said it expected revenue growth to decelerate through the end of the year. Assuming flat growth in the quarter, it estimated adjusted earnings before interest, taxes, depreciation and amortisation of about $200mn in that fourth quarter.
Evan Spiegel, Snap’s chief executive, said: “This quarter we took action to further focus our business on our three strategic priorities: growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality.”
Daily active users rose 19 per cent year-on-year to 363mn, the company said. It also announced a stock repurchase programme of up to $500mn of its class A common stock.