The owner of photo-messaging app Snapchat, Snap Inc, has posted its slowest revenue growth since going public five years ago as advertisers cut spending amid rising inflation and the war in Ukraine.
Shares of Snap dropped 25 percent in after-hours trading on Thursday.
Snap is the first of the big tech firms to report quarterly earnings and the results cast a shadow for other platforms that rely on advertising revenue such as Facebook owner Meta Platforms Inc, Alphabet’s Google and Pinterest, which report their results next week.
Snap’s poor results knocked more than $4bn off its market capitalisation in trading after the bell.
Shares of other companies that sell digital advertising also dropped, with Meta Platforms down more than 4 percent, Alphabet down 2.7 percent and Pinterest losing nearly 8 percent. Altogether the sell-off in late trading erased more than $50bn in stock market value from internet advertisement companies.
In a letter to investors, Snap said inflation caused some advertisers to reduce their marketing budgets.
“We expect that the operating environment will continue to be challenging in the months ahead,” the company said.
The company said its internal forecast estimates that revenue for the fourth quarter, which includes the holiday season when advertisers ramp up activity, will be flat from the previous year. The ability to forecast future quarters remains challenging, Snap said.
Revenue for the third quarter, which ended September 30, was $1.13bn, an increase of 6 percent from the same quarter in the previous year. The figure narrowly missed analysts’ expectations of $1.14bn, according to IBES (Institutional Brokers’ Estimate System) data from Refinitiv.
Snap announced in August it would lay off 20 percent of all employees and discontinue projects, such as gaming and a flying camera drone, to cut costs and steel itself against a deteriorating economy.
The Santa Monica, California-based company said it would refocus on growing its user base, diversifying its revenue sources and investing in augmented reality technologies, which overlay computerised images onto the real world.
Daily active users on Snapchat rose 19 percent year-over-year to 363 million during the quarter.
Snap said advertising revenue has historically followed the growth and engagement of its user base and “we remain optimistic about our long-term opportunity”.
It added it expects Snapchat daily active users to grow to 375 million in the fourth quarter.
Adjusted earnings per share were 8 cents during the third quarter, beating analyst expectations of breakeven.
Snap on Thursday also announced a share buyback program of up to $500m.
Article source: https://www.aljazeera.com/economy/2022/10/20/snap-shares-tank-25-percent-as-inflation-hits-ad-spend