Synopsis
Snap experienced a decline in advertising revenues during the first quarter, largely impacted by ongoing tensions in the Middle East and a slowdown in growth within North America. In addition, Snap has chosen to part ways with AI partner Perplexity. However, there is a silver lining as the company announced an increase in daily active users.The Snapchat parent also announced an end to a $400 million dealwith AI startup Perplexity. The deal, aimed at offering answers to users' questions within the Snapchat app, was unveiled in November.
Advertising revenue rose 3% to $1.24 billion in the quarter, driven by direct response ads, designed to prompt specific actions like app downloads or website visits. The company said it had an estimated $20 million to $25 million impact from the Middle East conflict during March and that it expects the geopolitical uncertainty to persist.
Squeezed between dominant platforms such as TikTok and Meta's Instagram in a crowded market, Snap has been turning to subscriptions to boost its revenue.
Revenue of $1.53 billion for the first quarter came in line with LSEG-compiled analysts' average estimate.
Snap expects second-quarter revenue of $1.52 billion to $1.55 billion, in line with estimates.
In contrast, rivals Meta, Pinterest and Reddit reported upbeat first-quarter revenue. Analysts have said smaller platforms remain most exposed to ad budget cuts during geopolitical uncertainty, as spending concentrates on larger platforms such as Meta and Google.
Snap reported 483 million daily active users in the first quarter, adding 9 million from the prior quarter. But DAUs in North America declined, while revenue growth in the region slowed to 2%.
The company's average revenue per user (ARPU) declined sequentially to $3.17 in the quarter and missed analysts' estimates of $3.21, as it focuses on international markets including the Middle East, North Africa, India and Asia Pacific.
Adjusted earnings before interest, taxes, depreciation, and amortization of $233.3 millionexceeded estimates of $205.9 million.
"Nearly 70% of advertising spend now uses at least one of our AI-powered automation solutions," Snap said in its letter to shareholders.
Last month, Snap said it would lay off about 1,000 employees, after Irenic Capital Management pushed the company to optimize its portfolio and improve performance.
