Shares of Snap (SNAP -5.17%) initially climbed as much as 12% early Wednesday after the company posted strong quarterly results. But then the stock gave up its gains into the afternoon, trading down 4.4% as of 3:30 p.m. ET after management warned of potential weakness in the ad market toward the end of this year.

Snap returns to revenue growth...

Snap's third-quarter 2023 revenue climbed 5% year over year, to $1.189 billion -- notably returning to year-over-year revenue growth after two quarters of declines -- translating to a net loss under generally accepted accounting principles (GAAP) of $368.3 million, or $0.23 per share. On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation -- Snap achieved net income of $0.02 per share. Analysts, on average, were expecting an adjusted net loss of $0.05 per share on lower revenue of $1.11 billion.

Snap also confirmed its daily active users climbed 12% year over year to 406 million, and over 200 million people have sent more than 20 billion messages through its new My AI chatbot feature. Average revenue per user declined 5.8% year over year to $2.93.

Snap CEO Evan Spiegel credited the company's earnings beat to operating leverage generated by its "reprioritized cost structure" -- a reference to the company's ambitious restructuring initiatives and workforce reductions over the past year.

In addition, Snap announced a new $500 million stock repurchase authorization valid for the next 12 months. The program will be funded by cash on hand (Snap ended the quarter with $3.6 billion in cash, cash equivalents, and marketable securities on its balance sheet), and will primarily offset dilution related to the issuance of restricted stock units to employees.

...but warned of potential weakness ahead

Looking ahead to the rest of the year, however, management admitted it's seen pauses in spending from a large number of brand-oriented advertising campaigns following the onset of the war in the Middle East. As such, the company declined to provide formal guidance for the fourth quarter of 2023. However, management did note their internal forecasts assume Q4 revenue in the range of $1.32 billion to $1.375 billion, or growth of 2% to 6%, implying daily active users continue to climb to a range of 410 million to 412 million people. 

Analysts, on average, were modeling Q4 revenue growth of around 2.6% -- near the low end of Snap's informal range -- so the market would likely respond well if the company delivers on its targets and effectively continues its turnaround. But for now, in a market that loathes uncertainty, it's hardly surprising to see Snap stock giving up its earlier gains today.