Snap Reports Disappointing Revenues While Ads Decline; Stocks are sinking

(Bloomberg) — Snap Inc. shares fell. rose more than 30% in pre-market trading on Wednesday after Snapchat's parent company reported disappointing holiday quarter revenue.

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In the fourth quarter, revenue increased 5% to $1.36 billion, below analysts' average forecast of $1.38 billion. For the full year, revenue growth was flat, “reflecting a challenging operating environment,” according to a letter to shareholders on Tuesday.

CEO Evan Spiegel has been leading the company through an extensive restructuring over the past two years, cutting jobs and terminating projects that didn't boost revenue or user growth. The Santa Monica, California-based company said Monday that it will reduce its workforce by an additional 10% this year in an effort to reduce hierarchy and promote personal collaboration.

But despite the latest round of layoffs, Snap forecast an adjusted EBITDA loss of between $55 million and $95 million in the current period, far exceeding the $33 million loss that analysts had expected.

Shares fell nearly 31% in premarket trading after closing at $17.45 in New York on Tuesday.

Snap and Meta Platforms Inc. were affected. strongly influenced by the changes made by Apple Inc. in 2021 on its privacy settings, making it difficult for advertisers to track iPhone users. Meta has bounced back, posting a 25% increase in sales in the fourth quarter, its biggest quarterly increase in two years, while Snap is still recovering.

Snap has overhauled its core business to better target ads and measure their effectiveness, while also increasing its direct response ad offerings.

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In a letter to shareholders, the company said it was “encouraged by the progress we are making on our advertising platform,” and improving results for some advertising partners, but acknowledged that the conflict in the Middle East was a “headwind,” leading to its pause. About two percentage points of growth in the fourth quarter.

Read more: Snap faces another dip in outlook after results: Street wraps

Snap has tried adding new revenue streams with varying degrees of success. Its subscription offering, Snapchat+, has already amassed 7 million paid users and an annual revenue rate of $249 million — a unique feat among social media companies that have mostly failed to monetize subscribers. But its efforts to build augmented reality displays for retailers were deemed too complex and it shut down last year.

Snapchat had 414 million daily active users in the fourth quarter, up 10% from the same period last year. Nearly half of those are in established markets such as North America and Europe, regions the company says it will now prioritize. It's a notable pivot for Snap, which has spent years devoting resources to building support for Android phones in emerging markets.

“We are shifting more of our focus toward user growth and deepening engagement in our most profitable geographies,” Spiegel said in the letter. “Focusing on these initiatives will help us increase daily active usage of Snapchat, deepen content engagement, improve performance for advertisers, and ultimately accelerate revenue growth and increase free cash flow.”

The company said that more than 800 million people use the application globally every month.

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Snap expected its revenue to range from $1.10 billion to $1.14 billion in the first quarter, an increase of up to 15% from the previous year. The pace of growth is in line with average analyst estimates, according to data compiled by Bloomberg

In the fourth quarter, Snap reported a net loss of $248.7 million, compared to a loss of $287.6 million a year ago and below analysts' average estimate of $287 million. Earnings per share were 8 cents, compared to analyst estimates of 6 cents.

The company will incur costs of between $55 million and $75 million related to layoffs, most of which will be spent in the first quarter.

(Updates with pre-market stocks and chart)

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