Snap’s revenue declines 30% on lackluster guidance, as company says Middle East war creates ‘contradiction’

snap On Tuesday it reported revenue that lagged analysts’ estimates and issued a forecast that fell slightly short of Wall Street expectations. The stock fell 30% in extended trading.

Here’s how the company did it:

• earnings per share: Adjusted down to 8 cents, compared with the 6 cents expected by analysts, according to LSEG, formerly known as Refinitiv.
• Income: $1.36 billion vs. $1.38 billion expected according to LSEG
• global daily active users: 414 million vs. 412 million expected, according to StreetAccount
• Average revenue per user: $3.29 vs. $3.33 expected, according to StreetAccount

Snap has struggled to recover from the downturn in the digital advertising market and has now posted six consecutive quarters of single-digit growth or decline in sales. In the fourth quarter, revenue rose nearly 5% year over year to $1.36 billion, up from $1.3 billion a year earlier.

The company attributed some of the weakness to the war in the Middle East, which began with Hamas’ attack on Israel in October.

“Although we are encouraged by the progress we are making with our advertising platforms and the improved results we are driving for many of our advertising partners, we estimate that the onset of the conflict in the Middle East was a headwind year-to-date. That’s an increase of about 2 percentage points over Q4, Snap said in a letter to investors.

Growth is expected to accelerate in the first quarter, but not as fast as analysts were expecting. Snap forecasts sales of $1.095 billion to $1.135 billion for the quarter, which represents an increase of about 11% to 15% from a year ago. The midpoint of the range was $1.115 billion, slightly below analysts’ average estimate of $1.117 billion, or a 13% spread.

Daily active users will be 420 million in the first quarter, Snap said, slightly above analyst estimates of 419.3 million.

Snap shares fell below $12 after Tuesday’s report. They closed at $17.45 and were up 3% for the year ahead of the earnings announcement after rising 89% in 2023.

Earlier this week, Snap said it would cut 10% of its global workforce, which equates to about 500 employees. A spokesperson for the company told CNBC in a statement that the cuts were intended to reorganize staff and “reduce hierarchy and promote personal collaboration.” In mid-2022, Snap plans to lay off about 1,000 employees, or 20% of its full-time workforce.

Snap’s net loss for the quarter narrowed to $248.2 million, or 15 cents a share, representing a 14% year-over-year decline from $288.5 million, or 18 cents a share.

The company said it expects an adjusted EBITDA loss of between $55 million and $95 million in the first quarter, beating analyst estimates of $21.9 million. Last quarter, Snap issued an “internal forecast” for the fourth quarter rather than providing official guidance due to the “unpredictable nature of the war,” it said, referring to the Israel-Hamas war.

Snap on Tuesday disclosed sales in its Snapchat+ subscription service for the first time and said it was projected to hit $249 million in annual revenue in 2023. The service now has 7 million subscribers, up from 5 million last quarter. Snap introduced the product in 2022, pitching it as a way for users to access features early. It debuted that summer at $3.99 per month.

Social messaging company’s growth lagged behind bigger digital advertising rivals in fourth quarter meta, Amazon And AlphabetAll of which reported double-digit expansion in their ad units.

Snap and Pinterest are “very small companies that have struggled to build a substantial advertising business,” industry analyst Debra Aho Williamson told CNBC. “In this environment, the big guys are getting bigger.”

Last week, Snap CEO Evan Spiegel attended a Senate Judiciary Committee hearing on child safety and technology along with Meta CEO Mark Zuckerberg, X CEO Linda Yaccarino, TikTok CEO Shaw Zi Chew and Discord CEO Jason Citron. MPs questioned the officials, accusing them of failing to properly secure their respective social media platforms from child predators, among other concerns.

Pinterest will report fourth-quarter earnings on Thursday.

Watch: Project Liberty founder says social media apps like Facebook are ‘causing a lot of harm.’