Snap predicts revenue will fall up to 10% this quarter as ad woes persist

Snap warned its revenues could drop as much as 10 per cent in the first quarter of 2023, as the social media platform continues to be dogged by changes to Apple’s privacy policies that have upended its ability to tailor advertising to users.

Revenues at the Los Angeles-based company remained roughly flat year on year at $1.3bn in the fourth quarter of 2022, in line with analysts’ expectations. It was the slowest pace of revenue growth since the company went public in 2017, against the backdrop of an advertising slump and tough macroeconomic conditions.

However, in a letter to investors on Tuesday, Snap said its internal forecasts assume revenues will decline between 2 per cent and 10 per cent in the current quarter, as it continues to overhaul its advertising infrastructure after Apple’s iOS update.

So far this quarter it said its revenues were down about 7 per cent. Analysts had expected a slight uptick in revenues in the quarter, according to consensus collected by S&P Capital IQ.

Shares in Snap, which collapsed by about 80 per cent last year, fell more than 14 per cent in after-hours trading following the earnings release.

Introduced in mid-2021, Apple’s iPhone privacy changes require apps to get explicit permission from users to track them for advertising purposes. This has made it harder for apps to target and measure the success of their ad campaigns.

Snap said in the investor letter that it is using machine learning to deliver more relevant advertising, but the latest improvements “may be disruptive to auction dynamics in the near term, especially given the weak demand environment”.

The company added it believed it “has a path to adjusted ebitda break-even” in the first quarter after starting a radical restructuring in the second half of last year, which included letting go of a fifth of its 6,500-strong workforce and cutting investment in initiatives such as its augmented reality glasses and video content production.

The figures demonstrate the broad ramifications of Apple’s privacy changes, which have caused social media groups, including deep-pocketed rival Meta, to completely overhaul their ad infrastructure and fight harder for advertising dollars.

The results come amid a rough patch for tech stocks reliant on advertising, as inflation and rising capital costs have prompted brands to cut marketing spending. Meanwhile, new players such as TikTok have heightened competition.

Meta, the parent of Facebook and Instagram, slid nearly 2 per cent in after-hours trading, while Pinterest lost 2.5 per cent.

In the fourth quarter, Snap’s daily active user numbers rose 17 per cent year on year to 375mn.

Net losses stood at $288mn in the fourth quarter, including a restructuring charge of $34mn, compared to net income of $23mn in the same quarter of the previous year.