Snap shares lose all of their 2023 gains as its AI fails to impress
Snapchat’s parent company might be banking on artificial intelligence as the future of the company, but today’s investors are a lot more interested in the here and now.
Snap shares nosedived Thursday after the company released its first quarter earnings. The stock was down 20% in after-hours trading as of 5 p.m. ET, erasing all of its gains for the year to date.
In its report, Snap highlighted its My AI functionality, with a quote from CEO Evan Spiegel: “Our community continues to grow, reaching 383 million daily active users in Q1, and we are working to deepen engagement with our content platform while building innovative new features and services like My AI.”
The company also emphasized the AI-powered chatbot’s safeguard features, including time-out functionality and a new age signal.
“Soon, Snapchat+ subscribers will be able to send their Snaps to My AI, and My AI will generate a unique Snap in response,” the company wrote in a letter to investors. “With My AI, we’re taking the core product value of Snapchat—messaging—and making the experience even better while also working to establish new guardrails to help keep our community safe. Since launch, Snapchat+ subscribers have been having fun sending more than 2 million chats per day to My AI. We are excited about the opportunities we see for more innovation, especially as we look across our application at how AI can further enhance the Snapchatter experience.”
Despite the evangelical tones of the company, users don’t seem enamored with the feature, either. App store reviews of Snapchat have been hit with a wave of one-star reviews since the feature became widespread.
Investors, meanwhile, were focused on revenue—and Snap fell short there. The company reported $989 million, which was short of the expected $1.01 billion. Average revenue per user came in five cents below expectations at $2.58. And global daily active users were a hair shy, hitting 383 million versus a forecast of 384 million.
Snap doesn’t offer guidance formally in its earnings, but did note in its letter to shareholders that its “internal forecast” for Q2 revenue was $1.04 billion. That’s lower than the $1.1 billion analysts were hoping for and a 6% year-over-year decline.
Snapchat began roll out of My AI in mid-March, hoping to have fewer instances of AI hallucination than Bing and others have experienced. But that didn’t happen.
In one example, the AI, thinking it was talking to a 15-year-old, reportedly offered advice when asked about how to hide the smells of alcohol and pot, though it did note the activities may be illegal. It also offered to write a school essay for the supposed student. In another test, it gave advice to a supposed 13-year-old on how to set the mood for their first time having sex—with a 31-year-old. Since then, Snapchat has added new safeguards, but users on TikTok have posted many alleged examples of strange chats with the AI bot.
Last October, the company reported underwhelming Q3 earnings, despite laying off 20% of its workforce.
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