Snapchat Inc. shares crashed more than 27% Thursday late trading after the company declared its quarterly results. It was the lowest quarterly growth in sales, and the company said that decline in advertisement spending contributed to the outcome.
The Snapchat app creator Q3 sales grew to $1.13 billion, up 6% and lower than average estimates by analysts compiled by Bloomberg of $1.14 billion.
Snapchat announced it was downsizing its workforce by 20% and discarding projects, including its augmented reality efforts, that do not contribute to its revenue or user growth. The last quarter was spent refocusing and shrinking its business as the company responded to slow market spending by digital marketers and plunging sales.
Snapchat shares have already fallen 77% in 2022, and Thursday, they fell to a low of $7.78 before recovering to close at $10.79.
Snapchat app is known for its disappearing messages and videos with special effects and is popular with the younger generation. It reported daily active users of about 363 million, reporting an increase of 57 million compared to the previous year, and it surpassed 358.7 million user estimates. The average revenue per user on Snapchat fell 11 % to $3.11, falling short of analysts’ estimate of $3.19.
The key market, the US, saw users watching less content compared to the same quarter in 2021. According to the company, Snap chatters in the US are not watching stories posted by friends as they would have liked, and this trend has caused concern to the advertisers.
Justifying marketing spends
Kelsey Chickering, an analyst with Forrester, said in an email that digital marketing teams are under pressure to justify ROI in a slowing economy and are consolidating spending on less but stronger partners and channels. This will result in Snapchat’s shrinking advertising budget as marketers shift to more efficient channels.
Snapchat said on Thursday its newly launched subscription service, Snapchat+ users, have grown to 1.5 million. This service allows exclusive access to pre-release features.
The app maker is prioritizing its effort to boost revenue by improving ads measurement tools on the platform.
The company reported a net loss of $360 million in Q3, or 22 cents a share, and the loss includes $155 million towards restructuring costs. The board announced it authorized the buyback of Class A stock worth $500 million in the next year.
Investors watch the Santa Monica, California-based Snapchat closely for direction as to how other social media companies, including Meta and Alphabet, will perform. These social media companies depend on advertising and will report their quarterly earnings next week.
Snapchat, Facebook, and Google compete for the shrinking advertising budget this year. Rising inflation has put pressure on consumer and company spending. The new rules from Apple Inc. have made it difficult for advertisers to measure their ad campaign performance, as all apps will now require users’ permission for tracking.
Following Snapchat’s result, shares of Alphabet, Meta, and Pinterest fell post-market trading.
