After a disappointing first quarter, Santa Monica-based Snap Inc. saw shares plummet about 20% within an hour of its earnings-report release. Its stock has declined by about 90% since an all-time peak of $83.11 in September 2021.

Snap was co-founded by Evan Spiegel and Bobby Murphy in 2011 and is the parent company of the Snapchat social media application. The company has seen its share of financial ups and downs over the last few years, but its latest earnings report, on April 27, showed a downward trajectory. 

First-quarter revenue totaled $989 million, compared to $1.06 billion in the same period the previous year. This is a decrease of about 7% year over year, which is in line with what Snap’s previous earnings report had predicted.

First-quarter adjusted earnings before taxes, interest, deductions and amortization showed a far bleaker picture: first-quarter Ebitda was $1 million, down more than 98% quarter over quarter from $64 million last year.

While financial results fell below analysts’ expectations, user engagement lived up to Snap’s own predictions. Daily active users totaled 383 million, up 15% year over year, and it reported 3 million users on Snapchat+, a subscription version of the original Snapchat app that was launched in June and offers “exclusive, experimental and pre-release features” for $3.99 per month. Other recent platform updates include a ChatGBT-powered artificial intelligence chatbot called My AI, which has received mixed reactions and can be removed only if a user subscribes to Snapchat+.

Snap told investors in its report that it had expected this decrease in first-quarter demand and attributed it to changes made to its ad platform in order to drive more clickthrough conversions. 

Following a pandemic-led advertising spending spree, Snap and other tech giants, including Meta and Google, are now grappling with the effects of the digital ad market slowdown. However, while Snap’s quarterly report indicated some financial distress, Meta and Google’s recent reports both showed more positive financial results.

“We are working to accelerate our revenue growth and we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners,” Spiegel said in a statement.

Adjusted operating expenses reportedly decreased an annualized $449 million compared to the second quarter of 2022. The companny attributed part of this decrease in operating expenses to a series of layoffs towards the end of 2022: Snap cut about 1,200 jobs last August, or about 20% of its more than 6,400 global employees. The report said it anticipates a “modest” increase in its headcount over the next few quarters to support artificial intelligence infrastructure and go-to-market advertising efforts.

According to the earnings report, its “internal forecast” for revenue in the second quarter is $1.04 billion, which represents a 6% year-over-year decline and a 5% quarter-over-quarter growth. Snap said it’s anticipating a daily active user count between 394 and 395 million and that adjusted Ebitda will be negative $75 million for the second quarter.

Jasmine Enberg, analyst with Insider Intelligence, wrote that Snap’s new features won’t be able to fund its new investments in generative artificial intelligence and reality. She added that while its recent moves make it a strong competitor to TikTok, Snap shouldn’t count on a potential TikTok ban to solve its own issues.

“While there’s no lack of innovation at Snap, its core ad business is in trouble due both to the economy and its unique position in the social ad market,” Enberg wrote. “Snapchat users primarily use the app for messaging, and messaging apps are notoriously difficult to monetize.”