Having completed its first year as a public company, Snap Inc. (SNAP, Financial) reported disappointing first-quarter earnings after the market closed on May 1, sending shares more than 15% lower in after-hours trading.
The Venice, California-based company, which runs the popular photo-sharing and chat app, Snapchat, posted an adjusted loss of 17 cents per share, in line with Thomson Reuters’ estimates.
Revenue climbed 54% from the prior-year quarter to $230.7 million, boosted by an increase in advertising, which grew 62% year-over-year to $229 million. The results fell short of the $244.5 million expected, however.
The company’s 191 million daily active users, which grew 15% year-over-year, also failed to impress. Analysts were expecting 194.2 million users. In addition, CEO Evan Spiegel said its DAUs for the month of March dipped below its quarterly average, though it was still above fourth-quarter numbers.
Average revenue per user increased 34% year-over-year to $1.21. This was slightly below FactSet’s projections of $1.27.
While the company appears to be gaining advertising traction, some of its user issues could be linked to Snapchat’s recent controversial redesign. Last November, Snap announced it was planning to tweak its layout in an attempt to attract new users, especially among the older population.
Current users did not embrace the changes. After severe backlash, including a petition on Change.org and a Tweet from reality TV star Kylie Jenner saying she never opened the app anymore, which CNBC reported sent shares tumbling around 8%, developers further tweaked the app’s design.
Investors were again disappointed when Snap executives said they anticipate a slowdown in revenue growth next quarter as a result of lower ad prices, which CNBC said have already been reduced by around 65% in the first quarter as it switched from a direct sales method to an automated “programmatic” auction-based system. During the earnings call, Chief Strategy Officer Imran Kahn said the company is focusing on driving advertisers’ return on investment in order to attract more to the platform.
“I think we're also a new platform, so we want advertisers to learn our platform and win on our platform,” he said. “And so, fundamentally, we are not focused on pricing right now; we are focused on bringing more advertisers on the platform and helping them understand our platform."
The stock’s selloff spilled over into Wednesday morning trading as it opened more than 20% lower at $11.30 per share, its lowest open ever. The stock closed at $14.13 on Tuesday.
Since its initial public offering on March 2, 2017, GuruFocus estimates the stock has fallen 42%. Year to date, it is down approximately 5%.
Disclosure: No positions.
