Technology

Snap Stock Declines by Over 25% as Revenue is Impacted by Decreased Advertisement Budgets

Snap Stock Declines by Over 25% as Revenue is Impacted by Decreased Advertisement Budgets

Snap’s bad year continues. As the firm deals with constricting advertiser budgets in an unsteady economy, Snap on Thursday (October 20, 2022) reported revenue of $1.13 billion for the three months ended in September, a small 6% growth from the year prior and less than Wall Street had anticipated.

In a letter to investors, Snapchat’s parent firm stated that a number of factors, including increased competition and unease from the advertisers that make up its primary business, were slowing down the company’s revenue growth.

“We are finding that our 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,” the company said in the letter.

Shares of Snap fell nearly 25% in after hours trading following the earnings report.

Snap’s report kicks off what is expected to be a sobering tech earnings period, as layoff announcements, hiring freezes and other cost-cutting measures have become increasingly common in the industry amid fears of a looming recession.

We expect that the operating environment will continue to be challenging in the months ahead and believe the actions we are taking provide a clear path forward for Snap.

Snap helped set off a wave of anxiety among tech investors when it warned in May that the economy had worsened faster than it expected, cutting into its revenue and profit forecast for the quarter. In late August, Snap announced plans to lay off some 20% of its more than 6,400 global employees, or more than 1,200 staffers.

Like other tech companies, Snap has had to confront headwinds from rising inflation, a stronger dollar and broader economic jitters that are leading some advertisers and consumers to rethink their spending in the United States and abroad.

Snap has also faced increasing competition from fast-growing competitors like TikTok, and is still navigating its digital ads business in the wake of privacy changes implemented by Apple that have made it more difficult for marketers to target users with ads.

There were some glimmers of hope in Snap’s report, including that the number of daily active users grew 19% year-over-year to reach 363 million in the third quarter. Its net loss was also smaller than Wall Street had expected, but the company nonetheless lost $360 million in the quarter, compared to a loss of $72 million in the year prior. Much of that loss ($155 million) came from restructuring charges related to layoffs.

Snap declined to provide financial guidance for the final three months of the year. In its letter to investors, the company said: “We expect that the operating environment will continue to be challenging in the months ahead and believe the actions we are taking provide a clear path forward for Snap.”