(News Bulletin 247) – The parent company of Snapchat announced lower-than-expected revenue for the fourth quarter as well as disappointing forecasts for the first three months of 2024. The group believes it has been penalized by the conflict in the Middle -East.

Unlike Meta, which delighted the market last week with results well above expectations, Snap, parent company of the social network Snapchat, strongly disappointed. The group published its quarterly accounts on Tuesday after Wall Street closed, which received an initial frosty reception from Wall Street. In post-market trading, the stock fell 32.7%.

Snap Inc reported revenue up 5% for the entire fourth quarter to $1.361 billion. According to the LSEG consensus cited by CNBC, analysts expected revenues of $1.38 billion.

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The conflict in the Middle East weighs

In a letter to its investors, Snap estimated that the conflict in the Middle East between Israel and Hamas had reduced its growth by 2 percentage points in the fourth quarter.

The company’s gross margin stood at 55%, a drop of nine percentage points over the quarter. The number of active users per day increased by 10% year-on-year to 414 million.

Adjusted gross operating income (Ebitda) fell significantly, to $159 million compared to $233 million a year earlier. The net loss, however, narrowed to $248 million compared to $288 million in the fourth quarter of 2022.

These disappointing results come the day after the group announced a reduction in its workforce by 530 positions, or around 10% of its total workforce. Snap expects this new cost-cutting effort to result in a pre-tax charge of between $55 million and $75 million, the majority of which will be charged in the first quarter of 2024.

Far from Meta

Regarding its outlook, Snap expects revenues of $1.095 billion to $1.135 billion in the first quarter of 2024, reflecting growth between 11% and 15%. The group also plans to report negative adjusted Ebitda, with a loss ranging from $55 million to $95 million. According to CNBC, analysts previously forecast first-quarter revenue of $1.117 billion and less negative Ebitda than the company’s projection of $21.9 million.

Despite its efforts to reduce its reliance on social media advertising, Snap still depends on that market, Jasmine Enberg, senior analyst at Insider Intelligence, told Bloomberg. However, in this area, the company has difficulty competing with its major competitors, such as Instagram and Facebook, both owned by Meta.

“Snap is a smaller and less essential player for advertisers than Meta, and it has struggled to build a strong advertising business,” the analyst added. Although revenue rose in the fourth quarter, “the company’s rebound has not kept pace with the big tech titans.”

Proof that Snapchat’s model based on ephemeral messages and photos – and copied by its competitors – is not enough to generate sufficient growth to satisfy the market and even less to achieve profitability.