Snap, the parent company of Snapchat, has seen its shares plunge 20% in after-hours trading after reporting the results of the first quarter.
The company missed Wall Street revenue estimates of $1.000 billion, ending the quarter at $989 million. This represents 7% less than in the same period of the previous year, and it marks the first time since Snap went public that revenue has fallen.
Snap attributed this drop to "disrupted" demand for ads after making improvements to the platform on which it sells ads. It could also have something to do with privacy changes introduced by Apple, 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 starting to see their ad revenue pick up. Results from Facebook's parent company on Wednesday posted a rise in revenue suggesting Meta is snapping out of its slump and increasing revenue.
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 company's daily user count grew 15% year-on-year to 383 million, which CEO Evan Spiegel says will help the company accelerate revenue growth.
As has become the norm in the tech industry, Snap last year had to lay off staff and try to mitigate costs by slowing production of original Snap-funded products, minis and games, hardware and much more. Now, the company is pivoting to initiatives more focused on artificial intelligence.
Last week, Snap launched its OpenAI-based chatbot, My AI, which allows Snapchat users to chat with the bot individually or in groups. According to the company, users send more than two million messages a day to the bot, but this could only be due to the initial novelty, unless the product improves. Subsequently, Snapchat saw ratings rise to one star, as users criticized the chatbot and called for its removal.
Snap is also working to increase subscription revenue. The company offers a $4/month subscription to Snapchat+, which offers features like custom notification sounds, story expiration controls, customizable chat wallpapers, and much more. Snap has also said that subscribers, currently numbering about 3 million (just 1% of daily active users), will have access later this year to a feature that allows My AI to respond to them with a visual Snap by generating an image based in the conversation.
During the quarter, Snap also launched AR Enterprise Services, a new SaaS business, to sell its suite of AR technologies 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 for the company, which, after all, is still struggling with its core advertising business.
