Snap Inc. (NYSE: SNAP) has provided a weaker-than-expected revenue forecast for the third quarter, indicating that the improvement in its digital advertising business is taking longer than anticipated to yield positive results.
The Santa Monica-based company revealed on Tuesday that it expects sales to be in the range of $1.07 billion to $1.13 billion for the period ending in September. This figure is slightly below the analysts’ average projection of $1.13 billion.
The news hurt investor sentiment as Snap stock plunged 19% in premarket trading on Wednesday, following a close at $12.51 the previous day. The stock is on track to record the biggest intraday drop for the company since April. The stock had increased by 40% in value this year.
Snap has been revamping its advertising business by introducing new tools that better align promotions with the relevant audience and measure their performance. In addition, the company has launched several new kinds of ads. However, these upgrades have come at a high cost due to the need for updated technology infrastructure and disruptions to marketers’ plans. Snap remains optimistic that these revisions will eventually lead to increased revenue in the long run.
“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.
The company’s overall sales for the second quarter have declined by 4%. This marks the second consecutive quarterly drop in revenue compared to the previous year. However, the premium subscription offering, Snapchat+, has grown to 4 million users.
On the financial side, Snap reported a net loss of $377 million for the quarter, slightly better than the analysts’ average estimate of $397 million. The company increased its spending on technology infrastructure to support machine learning, artificial intelligence technologies, content recommendations, and its generative AI camera filters called Lenses. The cost per daily active user rose to 70 cents, up from 58 cents in the same quarter the previous year.
The Snapchat app continues to grow, boasting 397 million daily users in the second quarter. Snap predicts this number to 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.