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Snap (SNAP) Q1 Loss Widens, Shares Drop on Slow User Growth
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Shares of Snap Inc. (SNAP - Free Report) were down over 23% during today’s pre-market trading session as the company failed to please investors with its first quarterly results post the initial public offering (IPO). Investors look worried over the company’s long-term prospects as the first-quarter 2017 results clearly depict a slowdown in user base and revenue growth rate.
For the quarter, Snap reported loss per share of $2.31, much wider than the year-ago quarter’s loss of just 14 cents. The year-over-year disappointing comparison was mainly due to stock compensation expenses related to its recently concluded IPO, which inflated the overall costs and expenses. However, the figure was a couple of cents narrower than the Zacks Consensus Estimate of a loss of $2.33.
For the quarter, messaging app Snapchat’s parent company reported revenues of $149.6 million, registering a whopping 286% year-over-year jump. However, on a sequential basis, revenues were down 10%, which, according to the company, may be due to seasonal impact on advertising, which comprises the bulk of its revenues.
Furthermore, the company’s daily active users (DAU) and average revenue per user (ARPU) witnessed year-over-year improvement. DAU jumped 36% year over year to 166 million from 122 million, while ARPU improved to 90 cents from 32 cents recorded in first-quarter 2016.
However, on a sequential basis, DAU and ARPU have both disappointed. DAU increased a meagre 5%, while ARPU saw a 14% decline from $1.05 recorded in fourth-quarter 2016.
The company’s main cost, hosting costs per DAU, has a different story. It came 60 cents for the quarter, which is higher than the year-ago quarter figure of 50 cents, but lower than the previous quarter figure of 72 cents.
Snap’s cost of revenues increased over two-folds to $163.4 million on a year-over-year basis. However, sequentially it fell 6% mainly due to benefit from lower hosting cost which was partially offset by increased revenue share expenses.
The company noted that its operating expenses for the quarter increased 18% sequentially to $196.2 million, mainly due to continued investments to acquire engineering talent and scaling global operations. Total costs and expenses jumped over 16 folds to $2.363 billion due to increased stock compensation expenses related to the company’s IPO.
Net loss for the quarter came in at $2.209 billion, up from a loss of just $104.6 million reported in the year-ago quarter.
The company ended the quarter with cash and marketable securities of $3.243 billion, up from $987.4 million at the end of fourth-quarter 2016. During the quarter, Snap used approximately $155 million of cash for operational activities.
Our Take
Although, Snap’s first-quarter top- and bottom-line results fared better than the respective Zacks Consensus Estimate, the company’s slowing user base and revenue growth rates dampen its growth opportunities.
Notably, the company added only 5 million active daily users in fourth-quarter 2016, as well as last quarter, which happens to be the lowest since third-quarter 2014. User growth holds the key in attracting advertisers, which is the primary source of revenues for Snap. A slowdown in user base growth rate may look unattractive to advertisers.
We opine that slowdown in Snap’s user base started since the last year when its biggest rival Facebook added some cloned features to its Instagram app. Most importantly Instagram’s “Stories” feature, launched last year, dismally hit Snap’s user growth rate. This new feature allows users to post photos and video slideshows which disappear after a 24-hour period. Instagram stories directly mirror Snapchat’s own stories feature. Reportedly, after this launch, Snapchat recorded a slowdown in its users’ growth rate in the second half of 2016.
The Instagram app recorded tremendous jump in its monthly active users, touching 700 million marks last month. Most interestingly, it added 200 million monthly active users over the last nine months.
The reason behind Snapchat lagging behind Instagram is that it is not a pure social network company and therefore attracts mainly the young generation. It is more like a camera company which allows users to take photos and record videos, as well as facilitate editing options, and share the same with friends. However, photos or videos can be viewed for few seconds only, after which they disappear, and also cannot be saved.
Furthermore, since the early days of Snapchat, this disappearing messaging app has been associated with sexting. Snapchat has also dealt with a few other embarrassing issues, including two different racially insensitive filters. This may be refraining older people to have Snapchat accounts.
To counter all these headwinds, the company should look for options to increase its popularity among older people. The company should not hesitate in following the footsteps of its rivals and go for cloning some of their features.
Apart from this, Snap may look to acquire other smaller video or messaging app companies, such as Tango, Peer and Camfrog, which are popular among a particular section of people. By integrating the services of these companies, Snap will be able to enhance its Snapchat features, in turn attracting more and more people.
Therefore, in our opinion, Snap must do something to enhance its user base, failing which it may fall to Twitter’s shoes, which is down over 71% from its IPO price, rather than performing like Facebook shares which are up nearly 300% from the IPO price.
In addition, the company will have a tough task grabbing market share in the digital ad space, which is mainly dominated by Facebook and Alphabet (GOOGL - Free Report) aka Google.
Snap’s shares were trading near to its IPO price of $17 during today’s pre-market session. Notably, the stock has underperformed the Zacks categorized Internet Software industry since its first trade started on Mar 2. During the period, Snap lost 6.1%, while the industry gained 6.9%.
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Snap (SNAP) Q1 Loss Widens, Shares Drop on Slow User Growth
Shares of Snap Inc. (SNAP - Free Report) were down over 23% during today’s pre-market trading session as the company failed to please investors with its first quarterly results post the initial public offering (IPO). Investors look worried over the company’s long-term prospects as the first-quarter 2017 results clearly depict a slowdown in user base and revenue growth rate.
For the quarter, Snap reported loss per share of $2.31, much wider than the year-ago quarter’s loss of just 14 cents. The year-over-year disappointing comparison was mainly due to stock compensation expenses related to its recently concluded IPO, which inflated the overall costs and expenses. However, the figure was a couple of cents narrower than the Zacks Consensus Estimate of a loss of $2.33.
Snap Inc. Price, Consensus and EPS Surprise
Snap Inc. Price, Consensus and EPS Surprise | Snap Inc. Quote
Quarter in Detail
For the quarter, messaging app Snapchat’s parent company reported revenues of $149.6 million, registering a whopping 286% year-over-year jump. However, on a sequential basis, revenues were down 10%, which, according to the company, may be due to seasonal impact on advertising, which comprises the bulk of its revenues.
Furthermore, the company’s daily active users (DAU) and average revenue per user (ARPU) witnessed year-over-year improvement. DAU jumped 36% year over year to 166 million from 122 million, while ARPU improved to 90 cents from 32 cents recorded in first-quarter 2016.
However, on a sequential basis, DAU and ARPU have both disappointed. DAU increased a meagre 5%, while ARPU saw a 14% decline from $1.05 recorded in fourth-quarter 2016.
The company’s main cost, hosting costs per DAU, has a different story. It came 60 cents for the quarter, which is higher than the year-ago quarter figure of 50 cents, but lower than the previous quarter figure of 72 cents.
Snap’s cost of revenues increased over two-folds to $163.4 million on a year-over-year basis. However, sequentially it fell 6% mainly due to benefit from lower hosting cost which was partially offset by increased revenue share expenses.
The company noted that its operating expenses for the quarter increased 18% sequentially to $196.2 million, mainly due to continued investments to acquire engineering talent and scaling global operations. Total costs and expenses jumped over 16 folds to $2.363 billion due to increased stock compensation expenses related to the company’s IPO.
Net loss for the quarter came in at $2.209 billion, up from a loss of just $104.6 million reported in the year-ago quarter.
The company ended the quarter with cash and marketable securities of $3.243 billion, up from $987.4 million at the end of fourth-quarter 2016. During the quarter, Snap used approximately $155 million of cash for operational activities.
Our Take
Although, Snap’s first-quarter top- and bottom-line results fared better than the respective Zacks Consensus Estimate, the company’s slowing user base and revenue growth rates dampen its growth opportunities.
Notably, the company added only 5 million active daily users in fourth-quarter 2016, as well as last quarter, which happens to be the lowest since third-quarter 2014. User growth holds the key in attracting advertisers, which is the primary source of revenues for Snap. A slowdown in user base growth rate may look unattractive to advertisers.
We opine that slowdown in Snap’s user base started since the last year when its biggest rival Facebook added some cloned features to its Instagram app. Most importantly Instagram’s “Stories” feature, launched last year, dismally hit Snap’s user growth rate. This new feature allows users to post photos and video slideshows which disappear after a 24-hour period. Instagram stories directly mirror Snapchat’s own stories feature. Reportedly, after this launch, Snapchat recorded a slowdown in its users’ growth rate in the second half of 2016.
The Instagram app recorded tremendous jump in its monthly active users, touching 700 million marks last month. Most interestingly, it added 200 million monthly active users over the last nine months.
The reason behind Snapchat lagging behind Instagram is that it is not a pure social network company and therefore attracts mainly the young generation. It is more like a camera company which allows users to take photos and record videos, as well as facilitate editing options, and share the same with friends. However, photos or videos can be viewed for few seconds only, after which they disappear, and also cannot be saved.
Furthermore, since the early days of Snapchat, this disappearing messaging app has been associated with sexting. Snapchat has also dealt with a few other embarrassing issues, including two different racially insensitive filters. This may be refraining older people to have Snapchat accounts.
To counter all these headwinds, the company should look for options to increase its popularity among older people. The company should not hesitate in following the footsteps of its rivals and go for cloning some of their features.
Apart from this, Snap may look to acquire other smaller video or messaging app companies, such as Tango, Peer and Camfrog, which are popular among a particular section of people. By integrating the services of these companies, Snap will be able to enhance its Snapchat features, in turn attracting more and more people.
Therefore, in our opinion, Snap must do something to enhance its user base, failing which it may fall to Twitter’s shoes, which is down over 71% from its IPO price, rather than performing like Facebook shares which are up nearly 300% from the IPO price.
In addition, the company will have a tough task grabbing market share in the digital ad space, which is mainly dominated by Facebook and Alphabet (GOOGL - Free Report) aka Google.
Snap’s shares were trading near to its IPO price of $17 during today’s pre-market session. Notably, the stock has underperformed the Zacks categorized Internet Software industry since its first trade started on Mar 2. During the period, Snap lost 6.1%, while the industry gained 6.9%.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>