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Snap stock drops nearly 25% due to shrinking budgets of advertisers

Snap continues to be a bad year. Snap reported Thursday that it had $1.13 billion in revenue for the three months that ended September. This is a slight increase of 6% over the previous year and less than Wall Street expected. Snap faces tightening budgets from advertisers in uncertain times.

Snapchat’s parent company wrote to investors that its revenue growth had been slowed due to several factors including increased competition and jitters by advertisers, which make up its core business.

The company stated in a letter that it was finding that many of its advertising partners are cutting their marketing budgets in response to operating environment headwinds and inflation-driven cost pressures.

Snap shares fell almost 25% after-hours trading on the news of the earnings report.

Snap’s report marks the beginning of what is likely to be a very dark period in tech earnings. Layoff announcements, hiring freezes, and other cost-cutting measures are becoming more common amid concerns about a recession.

Snap caused anxiety among tech investors by warning in May that the economy was worse than it anticipated, reducing its revenue and profit forecasts for the quarter. Snap announced in August that it would lay off 20% of its 6,400 global employees. This is more than 1,200 people.

Snap, like other tech companies, has had to face headwinds from rising inflation and a stronger dollar. These jitters are leading consumers and advertisers to reconsider their spending in the United States.

Snap is also facing increasing competition from TikTok and other fast-growing competitors. Snap is still managing its digital ads business following privacy changes made by Apple. This makes it harder for marketers to target users using ads.

Snap’s third-quarter report contained some encouraging signs. The number of daily active users increased 19% year-over-year to reach 363,000,000. Although the net loss was smaller than Wall Street expected, the company still lost $360 million during the quarter. This is compared to the $72 million loss in the previous year. The restructuring costs related to layoffs accounted for a large portion of the loss ($155 million).

Snap declined to give financial guidance for the last three months of the year. The company wrote to investors: “We expect the operating environment to continue to be difficult in the months ahead, and believe that the actions we’re taking provide a clear pathway forward for Snap.”

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