Snap is not having a good quarter. Following this week’s news that the company was laying off 10% of its workforce, amounting to hundreds of employees, the company’s stock is now crashing after reporting a fourth-quarter earnings miss. The Snapchat maker’s stock dropped by over 30% in after-hours trading as investors reacted to Snap’s underwhelming revenue figures, tepid user growth and weak first-quarter guidance.
The company touted in its press release it had grown daily active users by 10% year-over-year to 414 million, but that figure was only up from 406 million in the prior quarter. And it failed to grow users substantially in a quarter that’s often the biggest of the year for app developers as people have more downtime to engage with their smartphones over the holidays and download new apps. Though Snap still has traction with younger users — a recent study found it was kids’ second most popular communication app, behind WhatsApp, and most popular by time spent — it has failed to grow to Meta’s scale as it’s not attracting adults the way that competitors like Facebook, Instagram and TikTok do. And as lawmakers prepare to crack down on apps that target children, Snap’s free-for-all days may be numbered.
CEOs from Meta, TikTok, Snap, X and Discord head to Congress for kids’ online safety hearing
Earlier this week, reports of Snap’s of extensive layoffs appeared to telegraph news that the company was not expecting a good quarter, unlike Meta, which not only blew past Wall Street’s expectations in Q4, but also paid out its first-ever quarterly dividend.
Instead, Snap pulled in $1.36 billion in revenue, below expectations of $1.38 billion. However, it beat on earnings per share at 8 cents versus 6 cents as expected.
Its outlook for the first quarter also didn’t align with what investors wanted to see, with a forecast of 420 million daily active users — another small increase, though largely in line with projections — and revenue of $1.095 billion to $1.135 billion, or 11% to 15% growth. Investors were looking for faster growth.
The company has struggled to expand beyond its core app, with its hardware projects like Snap Spectacles and the Pixy drone largely failing to gain traction. The latter was discontinued and was even just recalled as a fire hazard. Meanwhile, Snap’s attempts to expand into the enterprise market haven’t fared as well, either, with Snap shuttering its ARES (Augmented Reality Enterprise Service) division after less than a year.
Now AR looks like a passing fad, as Snap’s once-clever AR filters are rapidly being replaced by more advanced AI filters, with consumer adoption of the latter taking place more often on TikTok. Snap is attempting to pivot into this area with investments in its Lens Studio, used by AR Lens creators, which now offers AI capabilities. But the AI features are still in beta. It’s also toying with AI-powered Snap enhancements and AI images from a text prompt, but on this, it has many competitors. Meanwhile, Snap’s efforts at offering its own AI chatbot have been hit or miss, with the bot’s mere presence angering some users at first, then delivering underwhelming results.
Still, the company is managing to grow its paid subscription product, Snapchat+, which now has 7 million subscribers as of the fourth quarter, it said. The company also revealed for the first time that the subscription has an annualized revenue run rate of $249 million in 2023, according to its investor letter.
More to come.
Snapchat’s parent lays off 10% of workforce in order to ‘reduce hierarchy,’ says company
Comment