Jessica Heygate
Apr 28, 2023

Snap revenue falls 7% in Q1

The parent company of Snapchat said advertising demand was impacted by the platform’s transition to click-through conversions.

Snap revenue falls 7% in Q1

On Thursday, Snap reported its first revenue loss since it has been a public company, with revenue of $989 million in the first quarter down 7% from a year prior. 

The earnings release sent shares of Snap plunging more than 20% in after hours trading, before eventually recovering to an 18% dip.

The Snapchat parent company said a “major evolution,” of its platform during the quarter disrupted advertising demand. 

This involved unifying how users interact with ads across its different products. Previously, Stories and Spotlight ads adopted different commands, requiring to users to scroll either horizontally or vertically. These were shifted to click-based interactions in Q1.

The change requires advertisers to adapt their measurement solutions to click-through conversions, and resulted in a retraction of ad spend.

Chief financial officer Derek Andersen told investors that the company was “still working through some impacts,” from the shift.

“While some advertisers have already recovered to prior levels, and while some new advertisers are finding success under these changes, there are a small number of our top advertisers that have not recovered and this continues to be a headwind to demand as we started making our way into Q2,” he said during the company’s investor call.

He said the company was particularly concerned about a continued loss in demand from advertisers who rely on lift studies, which are a more delayed form of reporting.

Snap CEO Evan Spiegel said “some early green shoots” have emerged from the shift, including a diversification of the platform’s advertisers. Yet Andersen noted that it will take time for this more diverse base of smaller advertisers to drive Snap’s overall pipeline. 

Beyond Snap’s self-inflicted disruption, Andersen said the tech company was impacted by continued macroeconomic challenges and a tough competitive environment.

These factors had the largest impact on Snap’s brand and direct-response advertisers, with spend from these advertisers down 12% and 9% year-over-year, respectively. Verticals that performed better for Snap in Q1 include retail, CPG, travel and restaurants, the company said.

Andersen said that while the macroeconomic environment appears to have stabilized, it has done so “at a much weaker level” compared to a year ago.

Nevertheless, the social media firm appears to be over the hump. It said month-over-month growth in March was 21%, and that its internal forecast calls for 5% quarter-over-quarter growth. In a letter to shareholders it forecasted revenue of $1.04 billion in Q2, representing a 6% year-over-year decline.

Snap narrowed its net losses on an annual basis to $328.7 million in Q1, a $31 million decrease from the prior year, but this is a 14% increase from its $288 million loss in Q4.

North America drags down performance

The social media company performed worst in North America, its largest region, which posted a 16% fall in revenue to $639.9 million. Revenue from Europe fell 3% to $157.8 million. The decreases were partially offset by a 34% lift in revenue from Snap’s ‘Rest of world’ region, which drew in $191 million in the quarter.

The ‘Rest of world’ region also pulled in the largest user gains, adding an additional 7 million daily active users from the prior quarter. Europe added 1 million users to hit 93 million, and North America stayed flat at 100 million users.

Snap’s user growth has slowed over the past two quarters, but it said it did increase overall time spent watching content globally — driven primarily by Spotlight, which reached more than 350 million monthly active users on average in Q1, up 46% year-over-year.

Diversification efforts

Snap has rolled out several new products over the past 18 months aimed at diversifying its revenue sources, including its subscription offering Snapchat+, which it said now has more than 3 million subscribers. 

In March it launched its first enterprise offering, AR Enterprise Services (ARES), through which it licences its technology and provides professional services to retailers. 

The tech firm also capitalized on the generative AI hype with the rollout of its My AI chatbot powered by OpenAI’s GPT technology. It said Snapchat+ subscribers send on average more than 2 million chats per day to My AI.


Campaign Asia

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