Snapchat Performs Below Expectations, Stock Takes A Massive Hit
When Snapchat did their IPO back in March, the stock saw an instant 44% bump, pushing the stock up to $24.48 by end of trading on day 1. More so, the stock continued to push forward eventually touching highs of $29, a whopping 67%+ (approximately) increase from its IPO price.
But the story is finally unwinding on Snapchat’s dream story.
Just after market close, earlier today, Snapchat released it’s first quarter (as a public company) earnings. And oh boy, its a disaster.
The stock had already been on a downhill slope, ending the trading day at $22.98. But its dismal earnings report has resulted in the stock plummeting by close to 25% post market, with the stock trading at a low of $17.46, which is lower than its IPO price.
So what’s wrong?
The biggest issue is their user growth. In the social media industry, everyone is looking to garner eyeballs for their original content and other service offerings, clearly Snapchat is facing some serious competition from Instagram, and now Facebook messenger and Whatsapp Stories. Snapchat needs to focus on becoming a massive user based platform in order to pull larger advertising revenues.
With 166 million daily active users, Snapchat has only managed to add an additional 5 million users since its IPO.
Why is Snapchat Struggling to add users?
Our guess – Facebook.
Zuckerberg has always focused on a simple model. Create or acquire, and then run, social media platforms which have to potential to amass close to a 1 billion users, FIRST. Then, you monetize the cr@p out of it.
Facebook has now launched its ‘stories‘ feature on Instagram, Messenger and Whatsapp, with very positive buy-ins from their existing and new users.
But let’s ask Snapchat what they think their biggest cause for lack of user growth is.
Here’s the issue, they haven’t told us anything. No explanation whatsoever.
Earnings reports usually come out with detailed explanations as to what the company did wrong and/ or right, and their next steps. But it seems like Snapchat decided to either skip, or simply forgot its, moral (??), obligations to provide some information on their earnings.
Noted analyst Jan Dawson had this to say –
Absolutely no commentary in Snap’s financial release. Not sure I’ve ever seen that before
— Jan Dawson (@jandawson) May 10, 2017
With more than a billion daily active users, and close to 2 billion active monthly users, Facebook, outpaces Snapchat heavily. Worse, Snapchat trails behind Instagram stories, which has 200 million daily active users, even though Instagram stories has had all of 9 months compared to Snapchat’s almost 6 years!
Snapchat’s revenue streams consist of two product lines, its application, and its video-camera sunglasses. With revenues of $149.6 million from January to March, Snapchat missed analysts estimated by approximately $9 million (as per a poll by Reuters).
Also what probably doesn’t help is Snapchat’s love for spending. The company’s expenditures make it a far cry from becoming profitable anytime soon. With its biggest cost being for Google Cloud services and Stock Option Grants, the company lost an alarming $2.2 billion over the last quarter.
Worrying times ahead for Snapchat’s shareholders.
Image Source: TechCrunch