Snap Inc. reported its first-ever decline in quarterly revenue after making major changes to its advertising tools. Shares plunged.

The maker of the Snapchat app said first-quarter revenue fell 7 per cent to US$988.6 million. That missed the average analyst estimate of US$1 billion, according to projections compiled by Bloomberg. The stock fell as much as 21 per cent.

The “continued disruption in demand” for advertising, caused by a combination of economic pressures and Snap’s own product changes, is expected to continue into the current quarter, the social media company said in a letter to investors. The forecast for second-quarter revenue is US$1.04 billion — below the US$1.1 billion average analyst projection.

“We anticipate that it will take time for some of our advertisers to fully recover and for our models to become better tuned to their new objectives,” the company said.

The stock is up 17 per cent this year through Thursday’s close.

The company posted a net loss of US$329 million, compared to the US$360 million average analyst estimate. 

Snapchat had 383 million users daily in the first quarter, in-line with analyst estimates. The time people spend watching content on via Snap grew, with the majority of the increase on the short video feed called Spotlight. Still, average revenue per user fell to US$2.58 from US$3.20 in the quarter a year earlier, impacted by less spending by marketers on digital ads.

Snap has been tweaking the design of its direct response ads — promotions that prompt users to take an immediate action like clicking to buy a product or signing up for an email list. It’s a change that the company expects will boost revenue in the long term, but is so far disruptive. 

With its core ad business under pressure, Snap cut costs and has been searching for new streams of revenue. The company now has more than 3 million paying users for its subscription offering, Snapchat+. Meanwhile, the company rolled out last quarter augmented reality technology that it’s selling to retailers to help shoppers try on clothes virtually.