Snap’s stock fell more than 30 percent in after-hours trading on Tuesday after its guidance fell short of analyst expectations even as the company reported a 5 percent increase in revenue, its second straight quarter of growth.
The Snapchat parent company released guidance for the first quarter estimating larger-than-expected losses compared with Wall Street’s expectations — prompting some analysts to suspect the company was spending more aggressively than anticipated. Last quarter, Snap declined to provide guidance because of the uncertainty surrounding the war between Israel and Hamas.
Amplifying concerns, Meta, which owns Facebook and Instagram, last week reported that its profit more than tripled.
“This is particularly problematic for the company after Meta posted such great numbers in the same quarter, as it hints that Snap’s concerns are not macroeconomic in nature but mainly internal,” said Thomas Monteiro, a senior analyst at the financial website Investing.com.
Snap’s revenue for the three months ended Dec. 31 was $1.36 billion, up from $1.3 billion a year ago but below Wall Street projections of $1.38 billion for Snap. Net losses for the fourth quarter narrowed to $248 million, from $288 million a year earlier.
Evan Spiegel, the company’s chief executive, said in a letter to investors on Tuesday that “2023 was a pivotal year for Snap, as we focused relentlessly on adding value to our community while evolving our business for long-term growth.”
“While this decision was painful, and we will miss our friends and colleagues, we believe these changes are necessary to achieve our long-term goals” and manage expenses, Mr. Spiegel said in the letter.
Over the past year, Snap has been pivoting its business to direct response ads, which let customers click to buy products. Mr. Spiegel said the ad-platform change prompted declining sales during the first half of the year. But, he said, the move would better position Snap’s advertising business for long-term growth.
Analysts, however, have said the app may struggle to find ground with that model, since users primarily use the app to message one another and don’t always see ads.
Scott Kessler, an analyst at Third Bridge, said that the slim revenue growth during a quarter that included the holiday shopping season showed that Snap’s changes in the advertising platform “is taking more time and maybe costing more money than people expected.”
The company on Tuesday also pointed to successes with new services like Snapchat Plus, a subscription service available since July 2022 that costs $3.99 a month, which now has over seven million paid users. And it said that Snap Star, a creator program that started in early 2022, has lured many content creators onto the platform with the promise of earnings from ads posted alongside their public stories.
Snap’s user base continued to grow in the fourth quarter. There were 414 million daily active users for the quarter, a 10 percent increase from a year ago. Monthly active users, typically disclosed once a year, increased by 8 percent and surpassed 800 million.