Shares of Snapchat parent Snap plunged on Tuesday after the company reported a loss in the final three months of 2023.
Snap reported a net loss of $248 million for the December quarter, an improvement from the same period in the prior year and a narrower loss than Wall Street analysts had expected. Still, shares fell around 30% in after-hours trading Tuesday.
The company also said revenue from the quarter grew 5% year-over-year to $1.36 billion, its second consecutive quarter of revenue gains after two earlier quarters of declines last year.
However, in a Tuesday letter to investors, Snap said the conflict in the Middle East posted a “headwind to year-over-year growth of approximately 2 percentage points in Q4.”
CEO Evan Spiegel attempted to strike an optimistic tone in the company’s earnings release, saying, “2023 was a pivotal year for Snap, as we transformed our advertising business and continued to expand our global community, reaching 414 million daily active users.”
But the report comes one day after the company announced it would lay off 10% of its staff, cutting around 500 jobs. The reductions signal that the company is still in cost-cutting mode after the company in 2022 laid off what was then 20% of its workforce, around 1,200 employees, and another 3% of its staff last year.
Snap said Monday that the layoffs were meant to “best position our business to execute on our highest priorities” and to “promote in-person” work.
“Based on these numbers, yesterday’s layoffs appear more than necessary as the company will need to rethink its strategy, particularly in terms of monetization,” Thomas Monteiro, senior analyst at Investing.com, said in emailed commentary following the report.
Investors may be especially disappointed by Snap’s Tuesday results in the light of rival platform Meta’s 200% year-over-year profit growth for the same period, reported last week, which indicated an improvement in the larger digital advertising market, Monteiro said.
“Snap has failed to show the market its ability to capitalize on resilient ad spending across different parts of the economy,” he said.
Snap has been working to improve its advertising technology and offerings, following changes Apple’s made to its app tracking policies in 2021 that delivered a hit to the business models of Snapchat, Facebook and other platforms.
Spiegel touted the success of Snap’s ad-targeting efforts on Snap’s earnings call on Tuesday, saying the company had seen the number of small and medium-sized advertisers grow 20% year-over-year.
“I do think we’re making significant progress and we’re optimistic that we can continue to accelerate,” Spiegel said.
Snapchat in November announced a deal with Amazon that would let Snapchat users click on Amazon ads on the app, shop and check out, all without leaving the platform. The tool appeared to be a bid to more readily compete with the e-commerce offerings of rivals like Instagram and TikTok and to make Snapchat more attractive to advertisers.
Snap on Tuesday also announced that its Snapchat+ subscription program — a key effort to diversify its revenue — now has more than 7 million subscribers, up from the 5 million it reported in the fall.
The company also reported strong user growth. Daily active users grew 10% year-over-year in the December quarter to 414 million, with gains largely coming from outside the US and Europe. However, average revenue per user globally dipped 5% from the year-ago quarter.
In the current quarter, Snap said it expects daily active users to continue to grow from the December quarter to 420 million. The company is projecting year-over-year revenue growth of between 11% and 15% for the first three months of 2024.
Tuesday’s report also comes as Snap attempts to revamp its public image and distance itself from social media peers like Meta and TikTok that have faced regulatory scrutiny and safety concerns.
Snap on Friday launched a new brand campaign with the tagline “Less Social Media. More Snapchat” that aims to highlight its focus on private, personal conversations rather than passive consumption of content promoted by an algorithm.
Snapchat does have a feed called Spotlight where users can scroll through algorithmically sorted, short-form videos. But the company says its core mission is helping people to communicate with friends.
Days before the campaign’s launch, Spiegel appeared to testify alongside other tech leaders in a Senate hearing focused on the platforms’ safety measures for young users. During the hearing, Spiegel apologized to parents whose children had died after purchasing drugs on Snapchat.