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Snap shares plunged 35 per cent on Wednesday after its quarterly revenue growth fell shy of Wall Street expectations, as it struggles to recover from a digital advertising slump.

Compared with dominant, deep-pocketed rivals such as Meta, the smaller Los Angeles-based social media platform has battled to rebound after tough macroeconomic conditions caused marketers to tighten their belts in 2022. It was also among the hardest hit by the privacy changes introduced by Apple in 2021, which disrupted the way brands target advertising and measure their effectiveness.

Coming a day after announcing sweeping lay-offs, Snap said in an earnings report on Tuesday its revenues increased 5 per cent to $1.36bn in the fourth quarter, below expectations of a rise to $1.38bn. This reflected “a challenging operating environment”, it said in a letter to investors.

In its letter, Snap said it had made progress on wielding machine learning to boost its advertising performance for brands, and that it had succeeded in increasing the number of small and medium-sized advertisers in particular.

However, it estimated that “the onset of the conflict in the Middle East was a headwind to year-over-year growth of approximately 2 percentage points” in the fourth quarter.

Net losses narrowed to $248mn from $288mn the previous year, compared with consensus estimates of a decrease to $277mn. 

The results contrast dramatically with those of Meta, whose shares last week leapt 20 per cent after it beat revenue and earnings expectations and announced its first-ever quarterly dividend of 50 cents per share.

“The company’s rebound hasn’t kept pace with the big tech titans,” said Insider Intelligence principal analyst Jasmine Enberg. “Snap is trying to distance itself from social media, but the reality is that it still must compete for social ad dollars. Snap is a smaller, less essential player for advertisers than Meta, and it has struggled to build a robust ad business.”

In the current quarter, its guidance for revenues was between $1.095bn- $1.135bn, or growth of between 11-15 per cent. Current consensus revenue estimates stand at $1.12bn, according to S&P Capital IQ.

“We are shifting more of our focus toward user growth and deepening engagement in our most highly monetisable geographies, including North America and Europe,” the letter to investors said.

Snap on Monday said it would cut its headcount by about 10 per cent, or more than 500 employees. It said it would incur pre-tax charges of $55mn-$75mn, primarily severance and related costs, mostly in the first quarter.