Snap, the parent company of Snapchat, has seen its stock tumble 20% in after-hours trading after reporting first-quarter earnings Thursday.
The company missed Wall Street revenue estimates of $1 billion, closing out the quarter with $989 million. That’s down 7% from the same period last year, and it represents the first time since Snap went public that revenue fell.
Snap attributed this downgrade to a “disrupted” demand for ads after making upgrades to the platform on which it sells ads. It might also have something to do with the 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 ad revenue. Ad revenue for YouTube, for example, dropped 3% in the first quarter. And as a smaller company that’s popular among Gen Z users, Snap faces competition from TikTok.
Larger companies like Meta are starting to see ad revenue rebound. The Facebook-parent company’s earnings Wednesday reported a revenue beat that suggests Meta is coming out of its downward slump and into revenue growth.
Snap also recorded a net loss of $329 million, which is not as deep as the $360 million the company lost in Q1 2022.
The company’s daily user count 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, Snap has over the past year had to lay off staff and try to mitigate costs by slowing production on things like Snap-funded originals, minis and games, hardware and more. The company is now pivoting toward more AI-focused endeavors.
Last week, Snap launched its OpenAI-powered chatbot, My AI, that lets Snapchat users chat to the bot individually or with a group. The company said users were sending more than 2 million messages a day to the bot, but that could just be the initial novelty factor unless the product improves. Snapchat subsequently saw a spike in one-star reviews as users trash-talked the chatbot and called for its removal.
Snap is also working to boost revenue from subscriptions. 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 subscribers, of which there are about 3 million today (barely 1% of daily active users), will gain access later this year to a feature that lets My AI reply to them with a visual Snap 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 we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners,” said Spiegel in a statement.
A lot of these changes haven’t yet manifested into significant revenue dollars for the company, which at the end of the day is still struggling with its core ad business.