“Snap forcasts” slow growth warns tech companies relying on ad revenue

Snap Inc has forecasted a no revenue growth holiday quarter, which sent a warning signal to tech companies which depend on advertising revenue. Shares of digital ad companies, including Meta and Google-owner Alphabet dropped by 4% and 2%, respectively.

The company said its internal forecast estimates that revenue for the fourth quarter, which includes the holiday season when advertisers ramp up activity, will be flat from the previous year. The ability to forecast future quarters remains challenging.

Snap’s stock fell by 25%, while Pinterest’s stock declined nearly 8%. The sell-off erased over $40 billion in market value from these firms and other internet ad companies. Snap’s $4 billion market capitalization was knocked off in the recent trading.

In a letter to investors, Snap said inflation caused some advertisers to reduce their marketing budgets. The company said, “We expect that the operating environment will continue to be challenging in the months ahead.”

In August this year, Snap announced it would lay off 20% of all employees and discontinue projects such as gaming and a flying camera drone, in order to cut costs and steel itself against a deteriorating economy. The company said it would refocus on growing its user base, diversifying its revenue sources and investing in augmented reality technologies, which overlay computerized images onto the real world.

Snap said it expects Snapchat daily active users to grow to 375 million in the fourth quarter. The company also announced a share buyback program of up to $500 million.