Snap Inc. (SNAP.N) announced on Thursday that it missed analyst expectations for its quarterly revenue as a result of recent changes to its ad platform. In addition, the company warned that revenues for the next quarter could be below what Wall Street was expecting.
Following the close of the market, Snap shares have dropped 19%.
Known for its photo messaging app Snapchat, which is owned by the Santa Monica, California-based company, the company has been known for kicking off new social media trends that have been copied by larger competitors for years. The company has, however, faced investor questions regarding whether it would be able to turn its investments in new technology into increasing revenue.
Snap has said that it is not providing any formal financial guidance, however, it has forecasted $1.04 billion in revenue for the second quarter, which would mean a decline of 6% over the same period last year. Data from IBES from Refinitiv show that the internal forecast is below analyst expectations of $1.13 billion, according to IBES data from Refinitiv.
This week, Snap announced that it was improving the relevance of the ads shown to users and simplifying how people are able to interact with ads targeting them on Snapchat. Snap made the announcement in a letter to investors.
This change has made a small number of Snap's largest advertisers experience fewer "actions" as a result of the changes, including users tapping on ads more often than they did previously.
In the company's statement, it has stated that it will take time for the company's advertising systems to adjust to the new updates and result in better-performing ads in the future.
There were $989 million in revenues for the first quarter ended March 31, which was lower than analyst expectations of $1.04 billion.
This year, Snap's net loss during the first quarter of the year was $329 million, which is a decrease from the $360 million net loss Snap had a year ago.
With the advent of augmented reality, Snap has increased its investment in artificial intelligence and recently expanded its chatbot, My AI, to all Snapchat users around the world so that they can take advantage of it.
Snap also announced at a gathering for content creators, advertisers, and other partners held last week that My AI will now be able to respond to user messages with an image that has been entirely generated by artificial intelligence.
In line with expectations from Wall Street, Snapchat saw year-over-year growth of 15% to 383 million daily active users, an increase of 15% year-over-year.
As of the end of the second quarter, Snap expects to have between 394 million and 395 million daily active users.
In addition to forecasting lower revenue for the second quarter, Pinterest Inc (PINS.N) announced on Thursday that its shares fell 8% in after-hours trading after the market closed.
A combined stock market value of over $4 billion was lost by Snap and Pinterest following the release of their results on Thursday.
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