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Amid a growing number of struggling businesses, Snapchat’s parent company, Snap, continues to endure a challenging year of slow revenue growth.
Revenue growth
On Thursday, Snap reported revenue of $1.13 billion for the three months ending September.
The report shows a modest 6% year-over-year increase, less than Wall Street expected.
The company is currently facing shrinking advertising budgets in an uncertain economic environment.
The company released a letter saying several factors had slowed sales growth.
Factors include growing competition and fear of advertisers, which makes up Snap’s core business.
“We are finding that our advertising partners across many industries are decreasing their marketing budgets,” the company said in its letter.
“Especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs.”
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Snap shares and report
In after-hours trading after the earnings report, Snap shares fell nearly 25%.
The company’s report will usher in what should be a sobering period of tech earnings.
Layoff announcements, hiring freezes, and cost-cutting measures have become increasingly common across the industry amid lingering recession fears.
The company sparked a wave of concern in May when it warned tech investors that the economy was deteriorating faster than expected.
Deteriorating economic conditions impacted sales and earnings guidance for the quarter.
In late August, Snap announced plans to lay off 20% of more than 6,400 employees worldwide.
Economic headwinds and competition
Snap faced headwinds from rising inflation, a stronger dollar and broader economic concerns.
The latter has caused advertisers and consumers to reconsider their spending in the United States and abroad.
Snap is also facing increasing competition from TikTok, one of its fastest-growing rivals.
The company continues to navigate its digital advertising business after Apple’s privacy changes made it harder for marketers to target users with ads.
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Positive notes
Despite the report, Snap had a glimmer of hope as the number of daily active users rose 19% year-over-year to 363 million in the third quarter.
The company’s net loss was also lower than Wall Street expected.
However, Snap still lost $360 million in the quarter, compared to a loss of $72 million a year earlier.
Most of the $155 million loss comes from restructuring costs related to layoffs.
The company refused to share its financial outlook for the last three months of 2022.
In the letter, the company wrote:
“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.”
Reference:
Snap stock falls nearly 25% after revenue hit by shrinking advertiser budgets
