Shares in Snap Inc. fell sharply in late trading after the company reported a revenue miss in its first-quarter results and gave an informal outlook below expectations.

For the quarter that ended March 31, Snap reported earnings before costs such as stock compensation of a penny, up from a loss of two cents per share in the same quarter of 2022. Revenue fell 7% from a year ago, to $988.6 million. Analysts had expected a loss of a penny per share on revenue of $1.01 billion.

Revenue wasn’t the only miss in Snap’s first-quarter figures, with the company reporting daily active users of 383 million versus an expected 384 million and average income per user was $2.58 versus an expected $2.63.

Adjusted earnings before interest, taxes, depreciation and amortization came in at $813,000, down 99% from $64.47 million in the first quarter of last year. Net cash from operating activity delivered a rare increase in Snap’s financials, up 19% year-over-year to $151.1 million.

The DAU figure, while below analyst expectations, was up 51 million or 15% year-over-year, with active users increasing in all areas where Snap provides its services. Time spent watching Spotlight, Snaps’ entertainment platform for user-generated content, jumped 170% year-over-year as the service reached 350 million active monthly users, up 46%.

Because it wouldn’t be 2023 with a mention of artificial intelligence, Snap’s most prominent announcement during the quarter was the introduction of a chatbot powered by OpenAI LP’s ChatGPT. The service allows users to ask for recommendations about birthday gift ideas, event plans, dinner recipes and whatever else tickles their fancy.

Although companies adding AI features are now familiar, Snap may have been surprised by the reaction from users. Multiple reports earlier this week suggest that users hate the “My AI” feature, arguing that it gets in the way of Snapchat’s otherwise clean and easy-to-use interface. That Snapchat users apparently hate the AI feature makes the following statement somewhat interesting.

“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,” Chief Executive Evan Spiegel said in the company’s earnings release.  “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.”

Snap declined to give a formal outlook but did say in a letter to investors that its internal revenue range for the second quarter is $1 billion to $1.09 billion, with an internal forecast of $1.04 billion, implying a year-over-year decline of 6%. Analysts had expected $1.1 billion.

With misses in revenue, DAUs, average income per user and outlook, there was little to please investors in the figures and they reacted as expected, sending Snap shares down nearly 20% in late trading.

Image: Snapchat