Snap Inc.’s (SNAP, Financial) shares have been on a downhill run since its initial public offering (IPO) in March. The stock has lost more than 50% of its value. Moreover, shares of Snap plunged nearly 18% after reporting worse-than-expected third-quarter results on Nov. 7.
For the third quarter, Snap reported a loss of 14 cents per share, surpassing the analysts' estimate by 1 cent. Its net loss was $443.2 million, of which $40 million was a result of losses from unsold Spectacles as well as purchase commitment cancellations.
Its revenue came in at $207.9 million, missing the consensus by $28.8 million. Although that figure represents a surge of 62.2%, it is not impressive at all as it is down sequentially more than 90%. As a matter of fact, the company’s revenue growth has been deteriorating at a rapid pace.
Snapchat's daily users chart as of second quarter
Source: Statista
Apart from this, its user growth also falls short of expectations. Its daily active users (DAUs) were 178 million, less than the analysts' estimate of 181.1 million. The company added just 4.5 million new users, considerably lower than expected. Though its average revenue per user surged almost 40%, it failed to achieve Wall Street’s targets.
Instagram's users chart
Source: Statista
In contrast, Snap’s chief rival, Facebook’s (FB, Financial) Instagram, carries on growing its user base at a robust rate. It is well known that Instagram copied Snapchat’s stories feature, but Facebook has implemented Stories feature in a much better way compared with Snapchat’s Stories.
Instagram’s Stories feature has become more popular than Snapchat’s stories in a short span of time. Recently, Facebook CEO Mark Zuckerberg publicized that its Instagram Stories now comprises more than 300 million daily active users. Instagram Stories' daily active users alone are almost double Snapchat’s overall users.
Moving onward, the company announced that it is developing an algorithmic solution specifically for content discovery. Also, it is enhancing its Android application, which has been facing performance issues for a long time.
On the other hand, RBC Capital Market’s lead tech analyst Mark Mahaney recently publicized he was wrong about Snap. Mahaney issued a buy rating on Snap when it was trading at $24 per share and eventually downgraded the stock to hold after the company reported disappointing third-quarter results.
Summing up
Shares of Snap continue fading at a rapid rate, and its future looks uncertain as well. Although the stock currently trades near its all-time low, investors should not consider this a buying opportunity. The main problem in the case of Snap appears to be poor management.
On the other hand, Snap’s advertising platform is comparatively new, and advertisers are still not committed to advertising on it. The company plans to make several changes on its platform, but the question is will the management be able to execute the changes efficiently?
As a result, shareholders looking to profit from social media sector should consider buying healthy growth stocks like Facebook and stay away from Snap as its future growth seems imaginary.
Disclosure: No positions in the stocks mentioned in this article.
