Despite Shrinking Advertiser Budgets, Snap Stock Drops Nearly 25%

As the firm deals with constricting advertiser budgets in an unsteady economy, Snap on Thursday posted revenue of $1.13 billion for the three months that ended in September, a tiny 6% increase from the year prior and less than Wall Street had anticipated. In a letter to investors, Snapchat's parent firm stated that a number of factors, including increased competition and unease from the advertisers that make up its primary business, were slowing down the company's revenue growth. According to the company's letter, "We are discovering that our advertising partners across many industries are reducing their marketing expenditures, particularly in the face of challenging operating conditions, inflation-driven cost pressures, and growing costs." As a result of the earnings release, Snap's shares decreased by almost 25% in after-hours trade.   As layoff announcements, hiring freezes, and other cost-cutting measures have become more frequent in the industry due to concerns about an impending recession, Snap's report marks the beginning of what is anticipated to be a sobering tech earnings period. When Snap reported in May that the economy had become worse quicker than it had anticipated, cutting into its revenue and profit forecast for the quarter, it contributed to the rise of fear among tech investors. Snap announced intentions to lay off 20%, or more than 1,200 workers, of its more than 6,400 global employees in late August. Like other tech firms, Snap has had to deal with challenges brought on by escalating prices, a strengthening dollar, and general economic concerns that are prompting some marketers and consumers to reconsider their spending both domestically and internationally. In addition, TikTok and other rapidly expanding rivals have increased the rivalry for Snap, and the company is still figuring out how to run its digital ad business in the aftermath of Apple's privacy rules that have made it more challenging for advertisers to target consumers with advertisements. In Snap's report, there were some encouraging signs, such as the fact that the number of daily active users increased 19% year over year to reach 363 million in the third quarter. Although the company's net loss was less than what Wall Street had anticipated, it nonetheless lost $360 million in the quarter as opposed to a loss of $72 million the year before. This loss ($155 million) was mostly the result of restructuring costs associated with layoffs. Snap opted not to offer financial projections for the last three months of the year. "We expect that the operating environment will continue to be challenging in the months ahead," the business wrote in a statement to investors. "We think the changes we are taking create a clear way forward for Snap."