Snap, the parent company of Snapchat, has seen its shares fall 20% in after-hours trading after reporting first-quarter earnings on Thursday.
The company missed Wall Street revenue estimates of $1 billion, ending the quarter at $989 million. That’s 7% less than the same period last year, and marks the first time since Snap went public that revenue fell.
Snap attributed this downgrade to “disrupted” demand for ads after making updates to the platform on which it sells ads. It could also have something to do with privacy changes Apple has made, which make it more difficult for advertisers to collect data and target ads.
The company is not the only one experiencing the impact of reduced digital advertising revenue. YouTube’s ad revenue, for example, fell 3% in the first quarter. And as a smaller company that’s popular with Gen Z users, Snap faces competition from TikTok.
Larger companies like Meta are beginning to see an uptick in ad revenue. Earnings at Facebook’s parent company reported a revenue rise on Wednesday that suggests Meta is exiting its downward slide and entering revenue growth.
Snap also posted a net loss of $329 million, which isn’t as deep as the $360 million the company lost in the first quarter of 2022.
The number of daily users for the company grew 15% year-over-year to 383 million, which CEO Evan Spiegel says will help the company accelerate revenue growth.
As is becoming the norm in the tech industry, for the past year Snap has had to lay off staff and try to mitigate costs by slowing production of things like originals, minis and Snap-funded games, hardware and more. The company is now turning to more AI-focused initiatives.
Last week, Snap launched its OpenAI-powered chatbot, My AI, which allows Snapchat users to chat with the bot individually or in groups. The company said users were sending more than 2 million messages per day to the bot, but that might just be the initial factor of novelty unless the product improves. Subsequently, Snapchat experienced a surge in one-star reviews as users badmouthed the chatbot and called for its removal.
Snap is also working to increase subscription revenue. The company offers a $4 per month subscription for Snapchat+, which offers features like custom notification sounds, story expiration controls, customizable chat wallpapers, and more. Snap has also said that subscribers, of which there are around 3 million today (just 1% of daily active users), will gain access later this year to a feature that allows My AI to reply to them with a Snap. visual by generating an image based on the conversation.
During the quarter, Snap also launched AR Enterprise Services, a new SaaS business, to sell its AR technology suite to other companies.
“We are working to accelerate our revenue growth and are taking this opportunity to make significant enhancements to our advertising platform to help drive greater return on investment for our advertising partners,” Spiegel said in a statement.
Many of these changes have yet to translate into significant revenue dollars for the company, which at the end of the day is still struggling with its core advertising business.