Snap Plunges Nearly 20% as Quarterly Loss More Than Triples

See the original article here in the Wall Street Journal 

Snap Inc. SNAP -8.06% shares plunged as much as 20% after the company said its quarterly loss more than tripled, disappointing Wall Street again as it failed to significantly grow the number of people using its app daily or the amount of money advertisers are spending to reach those users.

For its third straight quarterly report as a publicly traded company, Snap failed to live up to Wall Street’s forecasts for revenue. The results Tuesday marked the latest in a string of stumbles since Snap went public in March, in what was considered the biggest U.S. listing since Alibaba Group Holding Inc.’s initial public offering in 2014.

In a conference call with analysts, Chief Executive Evan Spiegel said Snap would overhaul its signature product, the Snapchat messaging app, and acknowledged he misjudged demand for Spectacles, the company’s one-time buzzy video-recording sunglasses. Snap said it recorded $39.9 million in charges in the quarter, primarily because of excess Spectacles inventory.

The difficulties illustrate the enormous challenges Snap faces trying to wrest away market share from the two companies that dominate digital advertising, Facebook Inc.and Google parent Alphabet Inc.

Snap said revenue in the third quarter rose 62% to $207.9 million. Analysts polled by FactSet expected $236.9 million in revenue.

The revenue haul was the most Snap has logged in a quarter. But it also marked another three months of decelerating growth for a company not yet a year removed from its IPO. In the second quarter, Snap’s revenue more than doubled to $181.7 million.

Snap added 4.5 million daily users during the third quarter, bumping its total user base to 178 million but representing the slowest growth since the company started reporting the figure. Analysts surveyed by FactSet expected Snap would add 8 million new daily users during the quarter.

“We grew our daily active users at a lower rate than we would have liked,” Mr. Spiegel said on the call.

Shares plunged after hours to nearly $12, at one point knocking down Snap’s market value to around the same level as Twitter Inc., which had its own public offering four years ago today.

Mr. Spiegel said Snapchat is taking steps to make it easier for people to discover content others are sharing. But Mr. Spiegel issued a rare note of caution, saying “we don’t yet know how the behavior of our community will change when they begin to use our updated application.”

Analysts seized on the overhaul, with one raising questions as to why Snap needs to make seemingly significant changes to its signature product so soon after its IPO.

Mr. Spiegel defended the move. “We’re just not afraid to make changes in the long-term interest of the business,” he said, though he stopped short of saying Snap would implement a Facebook-like news feed.

Snap conceded it is struggling with a transition from direct ad sales to an auction-based model, in which advertisers bid on the amount they are willing to spend, the same method used by Facebook and Google.

The auction model dragged down ad prices by 60%, even though the number of advertisers spending in Snap’s auctions grew by nearly five times from the beginning of the quarter, Mr. Spiegel said.

“Taking share from the Facebook-Google advertising duopoly is virtually impossible,” said James Cakmak, an analyst with Monness, Crespi, Hardt & Co. “And for the third quarter in a row, Snap is showing they don’t have a silver bullet.”

Nearly all of Snap’s revenue comes from advertising. The company is competing for ad dollars against not only Facebook, a behemoth social network that counts more than a billion daily users, but also its rival’s Instagram photo-sharing app. Instagram’s Stories feature, a package of ephemeral videos and photos that copies Snapchat’s own popular Stories feature, crossed 300 million users in the third quarter, Facebook said.

Snapchat may be a favorite app among young people, but “its performance for advertisers is suspect and the platform isn’t delivering the experience equivalent to its main competitor, Instagram,” said Chris Paradysz, co-CEO of digital-marketing firm PMX Agency, which has purchased ads on Snapchat for its clients.

Snap’s quarterly loss came to $443.2 million, or 36 cents a share, significantly wider than the $124.2 million loss reported a year earlier. Expenses ballooned from a year earlier, to $669.8 million from $259.2 million.

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