Image source: BBC

Amid a growing number of companies struggling, Snapchat’s parent company Snap continues to endure a challenging year of slow revenue growth.

Revenue growth

Snap reported a revenue of $1.13 billion on Thursday for the three months ending September.

The report shows a modest 6% year-over-year increase, less than what Wall Street was expecting.

The company is currently facing shrinking advertising budgets in an uncertain economic environment.

The company released a letter saying several factors had slowed sales growth.

They listed factors that include growing competition and fear of advertisers, which is Snap’s core business.

“We are finding that our advertising partners across many industries are decreasing their marketing budgets,” the company said in its letter.

“Especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs.”

Snap shares and report

Snap shares fell nearly 25% in after-hours trading after the earnings report, 

The company’s report reads what should be a period of sobering technology gains.

Announcements of layoffs, staff freezes and cost-cutting measures have become increasingly common in the industry amid persistent fears of a recession.

The company sparked a wave of concern in May when it warned tech investors that the economy was deteriorating faster than expected.

The deterioration in economic conditions affected sales and earnings expectations for the quarter.

In late August, Snap announced plans to lay off 20% of its more than 6,400 employees worldwide.

Economic headwinds and competition

The company faced headwinds from rising inflation, a stronger dollar, and broader economic concerns.

The economic climate caused advertisers and consumers to rethink their spending in the United States and abroad.

Snap also faces growing competition from TikTok, one of its fastest-growing rivals.

The company continues to navigate its digital advertising business after Apple’s privacy changes made it harder for marketers to target users with ads.

Positive notes

Despite the report, Snap had a glimmer of hope as the number of daily active users increased by 19% year-over-year to 363 million in the third quarter.

The company’s net loss was also lower than Wall Street was anticipating.

However, Snap still lost $360 million in the quarter, compared to a loss of $72 million a year earlier.

Most of the $155 million loss comes from restructuring costs related to layoffs.

The company refused to share its financial outlook for the last three months of 2022.

In the letter, the company wrote:

“We expect that the operating environment will continue to be challenging in the months ahead and believe the actions we are taking provide a clear path forward for Snap.”

Reference:

Snap stock falls nearly 25% after revenue hit by shrinking advertiser budgets