Snap Shares Fall 14% As Firm Reports Revenue Miss, Anemic User Growth

Update: Snap shares are now off over 19 percent. Currently worth less than $12 per share, it is down over $5 per share from its IPO price.

After the bell, Snapchat parent company Snap reported its Q1 earnings results. The company saw revenue of $230.7 million and a net loss of $385.8 million. The company’s adjusted per-share loss totaled $0.17.

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As we reported this morning, the street expected the social media company to report revenue of $243.55 million and an adjusted per-share loss of $0.17.

Following its earnings miss, shares of Snap are dramatically lower. As of the time of writing, shares of Snap are off a staggering 13.8 percent. The company traded down just 1.4 percent in regular hours before its news was released.

But, for social companies, not everything is merely revenue. Revenue, after all, is a trailing metric for many companies. So how did Snap perform in driving users who will decant into revenue over time? From its release:

Daily Active Users (DAU)(1) grew from 166 million in Q1 2017 to 191 million in Q1 2018, an increase of 15% year-over-year. DAUs increased 2% quarter-over-quarter, from 187 million in Q4 2017.

Growing a mere two percent on a sequential-quarter basis is not good for a firm that has oodles of required growth ahead of it to both grow into its cost profile and (now lowered) valuation. What that means in practice is that the company needs to put lots of revenue growth on the books before it has a chance of becoming profitable. And, as every company is valued on future earnings potential to some extent, it has a lot of earning to do. Investors were expecting a much stronger result than a mere 54 percent period of year-over-year revenue burn.

Stamping on that point a bit, the company burned $222 million in cash during the quarter. At that pace, Snap has around two years of cash in the bank. Even more, the company’s adjusted EBITDA got worse year-over-year (16 percent), while the company’s revenue ($230.7 million) paled in comparison to its costs in the quarter ($623.2 million).

That is quite the delta.

The company’s results come in the wake of its controversial redesign. Snap has also announced a return to the hardware space, an effort that previously cost it tens of millions of dollars.

Snap, as a growth story, is fizzling. And as Facebook faces a host of controversies with continued growth, and Twitter regains its balance, it’s not a well-timed fizzle.

Addendum: During Snap’s analyst call, the company stated something its prepared remarks that I wanted to call out. Observe the following:

First, as we think about our year-over-year revenue growth rates, we are planning for our Q2 growth rate to decelerate substantially from Q1 levels, with growth in auction impressions, partially offset by pricing for both Snap Ads and Creative Tools.

We are planning for infrastructure costs to increase modestly in the short-term as we continue to test and rollout further changes to the application, partially offset by hosting cost efficiency programs.

So, expect more of the same in the future? That seems to be what the firm is saying.

Illustration: Li-Anne Dias

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