Snap Warns of Sales Drop After Revenue Growth Stalls

Snapchat’s parent company is struggling to revive growth with the digital advertising market in upheaval.

warned sales in the current quarter are likely to drop after revenue growth stalled in the final three months of last year, illustrating the difficult market conditions social-media companies are having to navigate. 

The Snapchat parent said it generated $1.3 billion in sales in the fourth quarter, roughly flat from the year-earlier period and broadly in line with Wall Street’s expectations. The growth figure was the lowest for Snap since going public almost six years ago.

Sales in the current quarter have declined about 7% year-over-year so far, the company said, and could be down as much as 10% for the full quarter. Wall Street had been expecting sales to slightly increase, according to FactSet.

“We continue to face significant headwinds as we look to accelerate revenue growth,” Snap Chief Executive Evan Spiegel said in a statement. 

Snap closed Tuesday up more than 4% at $11.56 but fell more than 14% in late trading after the results.

Snap kicks off a busy week of earnings for companies heavily reliant on digital ads. Meta Platforms Inc. reports results Wednesday and Google parent Alphabet Inc. on Thursday.

Software giant Microsoft Corp., which posted results last week, said revenue from its LinkedIn social-media platform advanced 10% from the year-earlier quarter and that its search and news advertising activities also saw a 10% increase in sales. Twitter Inc. which no longer reports quarterly results after Elon Musk‘s takeover in October, is offering incentives to lure advertisers back to the platform after an exodus. 

Snap’s net loss widened to $288 million in the fourth quarter, a stark change from the year-ago period when the company posted its first-ever quarterly profit. The figure also represents a bigger loss than Wall Street had been anticipating.

Snap declined to provide a formal top-line outlook or adjusted earnings forecast given market conditions.

Social-media companies have been dealing with more than a year of upheaval. Apple Inc. introduced privacy policy changes in 2021 that made it harder for social-media companies to help ad buyers target users. Russia’s invasion of Ukraine last year also dented ad spending. The market deteriorated further throughout the year as high inflation and recession concerns set in.  

Snap was among the companies hardest hit. Its shares fell more than 80% as revenue growth stalled and competition for the remaining digital ad dollars intensified.

“It’s just a harder market for them to win ad revenue,” said Mark Mahaney, an analyst at banking advisory firm Evercore Inc., adding that brands are more likely to spend their limited ad dollars on bigger platforms when budgets are tight, like Google, or Meta’s Facebook and Instagram.

Snap reacted to the deteriorating conditions in August by slashing 20% of its staff. Meta and Alphabet followed months later with their own plans for job cuts. It also led the way in other cost-saving moves, sunsetting projects not deemed core, including its flying camera drone and in-house “Originals” programming.

The company, in October, said sales for the quarter at the time were up about 9% from the year-prior period, though it warned that business was “highly likely” to decelerate over coming weeks. The company didn’t provide any formal guidance for the period given uncertain market conditions.

Snap said the number of daily users active on its platform was up 17% in the fourth quarter, suggesting the app still resonates with users at a time Mr. Musk is trying to revitalize Twitter and short-form video platform TikTok continues to lead Snap in app downloads.

The company said it added about 500,000 users to its new subscription service Snapchat+ and that monthly active users are were up more than 30% year-over-year on its TikTok competitor called Spotlight.

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