Image source: BBC

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

Revenue growth

Snap, on Thursday, reported revenue of $1.13 billion for the three months that ended September.

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

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 such as growing competition and fear of advertisers, 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 was released.

The company’s report reads what should be a softening period of technological advancement.

Announcements of layoffs, employee lockouts and cost-cutting measures are 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.

Worsening economic conditions impacted 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 growing economic concerns.

The economic climate has prompted advertisers and consumers to reconsider spending in the United States and internationally.

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 found a silver lining when its daily active users grew 19% year-over-year to 363 million in the third quarter.

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

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 came from restructuring costs related to layoffs.

The company declined 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