Stock prices for Santa Monica-based Snap Inc. declined last week after the social media company posted its fourth-quarter results. While it reported revenue growth of 5% year over year and a better-than-expected increase in Snapchat’s daily active user count, it also forecasted a decline in revenue for the first quarter.

Snap’s stock also declined prior to the earnings release when, one day before the results were published, the company announced it would lay off approximately 10% of its staff.

Snap posted $1.4 billion of revenue for the fourth quarter, up about 14% from its third-quarter revenue of $1.2 billion. Citing an expected increase in marketing costs for the first quarter as well as restructuring costs from its upcoming layoffs, the company told investors that it expects only $1.1 billion of revenue this quarter. About 500 Snap employees will be laid off over the quarter.

According to the Employment Development Department’s Worker Adjustment and Retraining Notification data, this includes 122 individuals at Snap’s Santa Monica headquarters and 52 at its Palo Alto office. In the day following the earnings report’s release on Feb. 6, Snap’s stock fell 35%, from $17.45 per share to $11.41 per share. Snap shares closed at $11.10 on Feb. 8.

The company said it expects to incur about $55 million to $75 million of costs related to that restructuring, the majority of which it will occur in the first quarter of this year. Derek Andersen, chief financial officer of Snap, told investors that about 60% of its operating expenses are related to its staff. While the layoffs will reduce those expenses, he said that those cost savings will likely not be reflected until at least the second quarter. 

“After restructuring on the operating expenses side and getting to a good size on our overall fixed-cash cost structure, it’s about being disciplined from here, which we expect to be able to do,” Andersen said. “The changes we made give us room to invest to support our growth, if and when we accelerate revenue.”

Snapchat sees gains

Despite this projected drop in earnings, Snap reported substantial user count gains for its flagship social media platform, Snapchat. Snapchat now has 414 million daily users, which is up 10% year over year and exceeds Snap’s prior forecast of 410 million to 412 million daily active users. Snapchat+, a paid subscription feature on its signature app, reached more than 7 million subscribers, up from 2 million at the beginning of last year.

Snap said that this subscriber increase contributed to substantial revenue growth. 

“Over the past five to seven years, we’ve really focused on our Android product and growth in emerging markets (and) that’s really about attracting a large volume of new users,” Snap Chief Executive Evan Spiegel told investors. “We obviously reached a very large number … but I do think there is some headroom to continue to grow our business in Europe and North America in terms of users.”

Despite the share slump following its fourth quarter report, Snap’s stock is approximately even with prices from this time last year. Its stock was trading at approximately $10.65 per share at the beginning of February last year, and this recent decline still leaves its prices similar to those at the time of its last fourth-quarter report. Shares hit a 20-month high of $17.05 on Jan. 29.

Andersen highlighted the company’s stock buyback program, which has repurchased nearly $1.2 billion shares over the last 18 months at prices below $10, which he said has helped get Snap through a “period of transition” at a more sustainable level of share-count growth. Spiegel said that while Snapchat isn’t “as large as some players,” he sees an enormous opportunity to continue growing the business.

Fellow social media company Meta released its fourth-quarter report this month and posted 25% revenue growth year over year and a 6% year-over-year increase in daily active users for its Facebook platform.

“It really wasn’t that all that terrible of a quarter for Snap, by its standards,” Inside Intelligence analyst Jasmine Enberg said. “The problem for Snap though is that context is key, and investors are inevitably going to compare it to Meta. And what Snap is showing is that it just can’t keep up pace with the big tech titans.”