Snap, Snapchat’s parent company, saw its stock drop 20% in after-hours trading after announcing first-quarter earnings Thursday.
The company missed Wall Street estimates of $1 billion in revenue, finishing the quarter at $989 million. This is down 7% from the same period last year, and marks the first time that revenue has fallen since Snap was announced.
Snap attributed the reduction to a “disabled” requirement for ads after making upgrades to the platform on which it sells ads. It may also have something to do with privacy changes Apple has made, making it more difficult for advertisers to collect data and target ads.
It’s not the only company suffering from the impact of declining digital ad revenue. For example, YouTube ad revenue fell 3% in the first quarter. And as a smaller company popular with Gen Z users, Snap faces competition from TikTok.
Larger companies like Meta are starting to see a pickup in advertising revenue. Facebook’s parent company’s earnings on Wednesday reported an outperformance in revenue indicating that Meta is emerging from its downward slump into 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 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 Snap has become regular in the tech industry, over the past year Snap has had to lay off employees and try to mitigate costs by slowing production on things like Snap-funded originals, snapshots, games, hardware, and more. The company is now moving towards more AI-focused endeavors.
Last week, Snap launched its OpenAI-powered chatbot, My AI, which lets Snapchatters chat with the bot individually or with a group. The company said users send more than 2 million messages a day to the bot, but that could only be an initial new factor unless the product improves. Snapchat subsequently saw a spike in one-star ratings as users spoke out about the chatbot’s trash and called for its removal.
Snap is also increasing 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 backgrounds, and more. Snap also said its subscribers, of which there are about 3 million today (barely 1% of daily active users), will get access later this year to a feature that allows My AI to respond to them with a visual Snap by creating an image based on their Conversation.
During the quarter, Snap also launched AR Enterprise Services, a new SaaS company to sell its suite of AR technologies to other companies.
“We are accelerating our revenue growth and are using this opportunity to make significant improvements to our advertising ecosystem to help increase our advertising partners’ return on investment,” Spiegel said in a statement.
Many of these changes haven’t yet manifested into significant revenue for the company, which at the end of the day is still struggling with its core advertising business.