Coverage: Snapchat stock plummets after first earnings report

Snapchat reported its first earnings Wednesday after its initial public offering, and the lower-than-expected growth and revenue caused its stock to fall by more than 20 percent.

Jankko Roettgers of Variety had the news:

Snap reported $149.65 million in revenue for its Q1 of 2017 Wednesday, compared to just $38.8 million for the same quarter last year. The company had a net loss of $2.2 billion, compared to $104.58 million for Q1 of 2016. However, much of that was due to stock-based compensation, with $750 million alone going to CEO Evan Spiegel. The operating expenses for the quarter were $196 million.

Analysts had expected revenue to come in at $158 million. Shares of Snap were down 23% in after-hours trading.

Investors weren’t only dismayed by Snap missing on revenue, but also by much slower-than-expected user growth numbers. Snapchat’s daily active users grew to 166 million for the quarter. That’s a 36% year-over-year increase, but only a tad better than Snapchat did at the end of last year.

Snap announced at the time of its IPO in March that it had 161 million daily active users on average in December. The company does not provide any monthly active user numbers.

These user numbers are in stark contrast to significant growth at Facebook, Snap’s biggest competitor. Not only is Facebook a lot bigger than Snapchat, attracting 1.28 billion daily active users for its service in Q1, the company also seems to succeed in copying some of Snapchat’s core features.

Ben Popper of The Verge reported that the loss was twice as much as last year:

The company’s losses ballooned to over $2.2 billion, but most of those were one time expenses related to stock bonuses paid out after a successful IPO. CEO Evan Spiegel got a sweet $750 million on his own. But even if you ignore that massive hit, Snap’s losses basically doubled. It burned through $104 million in cash in the first quarter of 2016, and lost $208 million during the first three months of 2017. This was despite the fact that the average revenue per user generated by Snap was 90 cents, up 14 percent from last quarter and up 181 percent from the same period last year.

Investors should have seen this coming. The company’s financial disclosures before its IPO revealed large and growing losses. Snap warned investors that it was unsure when, if ever, it would reach profitability. And while its user base was highly engaged, its user growth slowed to its lowest level ever in the fourth quarter of last year.

All the red flags that were present then continued to appear today, putting the company in the tough position. It will have to convince investors it can find ways to boost user growth or secure a path to profitability or its stock price will suffer the same fate as Twitter. That in turn can quickly make it difficult to attract and retain top talent.

Josh Constine of TechCrunch reported that CEO Evan Spiegel sounded glum on the conference call:

On its first earnings call, CEO Evan Spiegel sounded glum, and spoke for just a few minutes. He focused on highlighting the company’s progress on Android development. Spiegel said that improvements to the performance of the Android app led Snapchat to double the amount of net additional Android devices on the network, and Android accounted for 30 percent of net additional users in the quarter.

Chief Strategy Officer Imran Khan says that Android improvements led Snapchat to now see an average of “over 30 minutes” per day per user, up from the 25 minutes to 30 minutes figure it gave ahead of the IPO.

Snapchat did break out one interesting new number. It earned $4.5 million on Spectacles and its “other revenue” category in Q4 2016, and over $8.3 million in Q1. That would mean it could have sold up to 98,000 pairs of Spectacles, though the number is likely slightly smaller due to other revenue sources being included here.

In response to questions about how Snap could boost its growth rate, Spiegel dismissed “growth hacking” techniques like having users invite their whole address book to join Snapchat or follow them. The CEO thinks these techniques aren’t sustainable long-term, and that if people added all their friends instead of just a few, they might feel uncomfortable sharing more authentic personal content.