Snap Inc. projected revenue at the lower end of analysts’ estimates for this quarter, signaling that improvements to the digital advertising business are taking longer than expected to pay off. The shares fell in premarket trading, on course for the biggest intraday drop in three months.
Sales will be $1.07 billion to $1.13 billion in the period ending in September, the Santa Monica-based company said Tuesday in a statement. That compared with analysts’ average projection of $1.13 billion.
Snap, which develops the Snapchat social media app, has been significantly changing its advertising business, adding tools that make it easier to match promotions to the people who want to see them, and measure how they performed. The company has also introduced several new kinds of ads. The investment has been costly — both because of the technology infrastructure and the disruption to marketers’ plans — but the company expects the revisions to increase revenue in the long run.
Read More: Snap Sinks 19% After Sales Forecast Disappoints: Street Wrap
“From a revenue perspective, our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited,” the company said in the statement.
Snap shares plunged 19% in premarket trading before New York exchanges opened on Wednesday after closing at $12.51. That’s on track for the biggest intraday decline since April. The stock had gained 40% this year through Tuesday’s close.
Sales declined 4%, Snap’s second-straight quarterly drop in revenue from a year earlier. While performance in its core digital advertising business is bumpier, Snap is trying to make money in other ways. Its premium subscription offering, Snapchat+, continues to grow to 4 million users.
The company posted a net loss of $377 million, less than analysts’ average estimate of a loss of $397 million. Snap increased spending on technology infrastructure in the quarter to help support the machine learning and artificial intelligence technologies the company is using to improve ads, content recommendations and its generative AI camera filters, called Lenses. Those costs were 70 cents per daily active user, compared with 58 cents in the year-earlier quarter.
The Snapchat app is still growing, with 397 million daily users in the second quarter. The company said it will reach 405 million to 406 million daily users in the current quarter.
“We are excited by the progress we have made delivering increased return on investment for our advertising partners,” Chief Executive Officer Evan Spiegel said in the statement.
(Updates with premarket trading from first paragraph)
