(Reuters) – Snap Inc. ( SNAP.N ) missed analysts’ expectations for quarterly revenue on Thursday as changes to its ad platform hit ad demand and warned that results for the next quarter could fall short of Wall Street targets. Snap shares fell 19% in after-market trading.
The Santa Monica, Calif.-based company that owns picture messaging app Snapchat has long been known for spawning new social media trends copied by larger rivals, but has faced questions from investors about whether it can replace investments in new technologies. Like Augmented Reality (AR) in revenue growth.
While Snap said it does not provide official financial guidance, its second-quarter revenue forecast is $1.04 billion, down 6% from a year earlier. The internal forecast was below analysts’ estimates of $1.13 billion, according to Refinitiv IBES.
In a letter to investors, Snap said it is taking steps to improve the relevance of ads served to users and simplify the way people interact with Snapchat ads.
As a result of the change, Snap said, some of Snap’s biggest advertisers are seeing less “action,” such as users clicking on ads, than before.
The company said it will take time for its ad system to adjust to the update and deliver better performing ads.
“We’re optimistic that the improvements to our advertising platform lay the foundation for continued growth,” Snap CEO Evan Spiegel said on a conference call with analysts.
By contrast, Alphabet (GOOGL.O) and Meta Platforms (META.O), two of the world’s largest digital advertising platforms, posted encouraging first-quarter results this week as the brands fared well among companies thanks to their broad reach among consumers. Snap’s revenue for the first quarter ended March 31 was $989 million, down from $1.06 billion a year earlier and beating analysts’ estimates of $1.04 billion.
Jasmine Enberg, principal analyst at Insider Intelligence, said Snap’s revenue decline is “a sign that there are bigger problems at the company.”
“Snapchat users primarily use the app for messaging, and messaging apps are very difficult to monetize,” she said.
Snap’s net loss for the quarter was $329 million, down from a $360 million net loss a year earlier.
In addition to augmented reality, Snap has increased its investment in artificial intelligence and recently expanded its chatbot called My AI to all Snapchat users worldwide.
At its annual meeting of content creators, advertisers and other partners last week, Snap also announced that My AI will be able to respond to user messages with a fully AI-generated image.
Spiegel said Thursday that the company is in the early stages of experimenting with sponsored links in text generated by My AI.
Snapchat’s daily active users rose 15% year-over-year to 383 million, in line with Wall Street forecasts.
Snap said it expects between 394 and 395 million daily active users in the second quarter.
Pinterest Inc ( PINS.N ) also reported second-quarter revenue that fell short of market expectations on Thursday, sending its shares down 13% in after-call trading.
Snap and Pinterest lost more than $4 billion in combined stock market value Thursday following their results.
