Snap Inc., the parent company of the popular Snapchat app, saw its shares plummet by more than 30% following disappointing revenue results in the holiday quarter. The slump comes as the company continues to face challenges in the digital advertising market.

In the fourth quarter, Snap reported a 5% increase in revenue, bringing it to $1.36 billion. However, this fell short of analysts' average projection of $1.38 billion. Overall, the company experienced flat revenue growth for the full year, reflecting the "challenging operating environment" it has been operating in, according to a letter to shareholders.

Under the leadership of Chief Executive Officer Evan Spiegel, Snap has undergone a broad restructuring over the past two years, which included job cuts and discontinuing projects that didn't contribute to revenue or user growth. Most recently, the company announced an additional 10% reduction of its workforce this year in an effort to streamline operations and promote in-person collaboration.

Despite these measures, Snap projected a loss in adjusted earnings before interest, tax, depreciation, and amortization for the current period. The projected loss ranging from $55 million to $95 million exceeds analysts' expectations of a $33 million loss.

Snap, along with Meta Platforms Inc., was adversely affected by changes made by Apple Inc. to its privacy settings in 2021. These changes made it more challenging for advertisers to track iPhone users. While Meta has managed to bounce back, reporting a 25% gain in sales in the fourth quarter, Snap is still in the process of recovering.

To improve its core business, Snap has implemented changes to enhance ad targeting and measurement effectiveness. It has also expanded its direct-response advertising offerings. The company expressed encouragement about the progress made with its ad platform and noted improved results for certain advertising partners. However, it acknowledged that the conflict in the Middle East posed a headwind that affected growth in the fourth quarter.

Snap has made efforts to diversify its revenue streams. Its subscription offering, Snapchat+, has attracted 7 million paying users with an annualized revenue run rate of $249 million, which is a unique achievement among social media companies. However, its venture into augmented reality offerings for retailers proved to be too complex and was shut down last year.

Snapchat's daily active users reached 414 million in the fourth quarter, a 10% increase compared to the same period the previous year. The majority of these users are located in established markets such as North America and Europe, prompting the company to shift its focus towards these regions. This marks a pivot for Snap, which had previously devoted resources to building support for Android phones in emerging markets.

In a letter to shareholders, Spiegel emphasized the company's focus on user growth, increased engagement, improved performance for advertisers, and ultimately, accelerated revenue growth and increased free cash flow. For the first quarter, Snap projects revenue of $1.10 billion to $1.14 billion, a potential 15% increase from the previous year.

In terms of financial performance, Snap reported a net loss of $248.7 million in the fourth quarter, lower than the $287.6 million loss from the previous year and beating analyst estimates. The earnings per share were 8 cents, surpassing the projected 6 cents.

As Snap grapples with the challenges in the digital advertising market, the company remains committed to adapting and finding new avenues for growth.