(Lionel Bonaventure, AFP)
San Francisco - Snap added
fewer users than projected in the first quarter, a sign that Facebook’s strategy of copycatting virtually every feature of its Snapchat
app is taking a toll on the newly public company. The stock tumbled 26%.
In its debut earnings report after a March
initial public offering, Snap, whose mobile app lets users send
disappearing video and photo messages, said it added 8 million daily
active users in the period, for a total of 166 million, with growth from
a year earlier slowing to 36%. Revenue also fell short of
Snap is working to prove that it can attract a dedicated young
audience in the competitive social-messaging market, justifying a market
value of almost $27bn.
The Snapchat app initially drew attention
for letting people add fun filters and overlays to their mobile photos
and videos, virtually turning human faces into puppies or crowning them
with flowers. In the past six months, Facebook has
adopted many of the same features for its own social applications,
Instagram. To keep wooing users and building up ad revenue, Snap has to
move faster than its larger competitor.
“They have to prove that they can keep innovating features, products,
and functionality that makes Snapchat engaging for consumers and useful
for advertisers,” said
Mark Mahaney, an analyst at RBC Capital Markets. “All of these
innovations that Facebook and Instagram are making could be undermining
the growth of Snapchat.”
The company’s shares, which had gained 35% since its March 1
IPO at $17, dropped as low as $17.07 in extended trading following the
report. They had slipped to $22.98 at the close in New York.
Six analysts polled by Bloomberg on average had projected 168 million
daily users for the period. Snap reported first-quarter revenue of
$149.6m, missing the $158.6m average analyst
estimate, according to data compiled by Bloomberg. The net loss came in
at $2.21bn, including $2bn in stock-based compensation
The Los Angeles-based company has been trying to improve the set of
metrics it gives marketers about how well its ad offerings perform,
teaming up with third parties to verify measurements.
Its pitch so far
has been to tout a hyper-engaged set of users that skews younger than
other social apps. The company said users created more than 3 billion
daily "snaps" in the quarter, up from more than 2.5 billion in the third
quarter of 2016.
“The advertising community really wants to support this network,” said
Rob Sanderson, an analyst at MKM Partners. “It’s a demographic that everyone struggles to reach.”
Still, Sanderson said, investors are concerned that unless it rapidly
adds users, Snap’s ability to sell more advertising will reach a
plateau at some point. User growth is a
familiar challenge - one that has dogged another social-media company,
Twitter, since its first earnings report in 2014.
Snap argues that it has a different strategy than the rest of the
social networks, and isn’t interested in adding users all over the world
like Facebook and Instagram. Instead, it wants to attract consumers in
only the most developed markets, where there’s a robust advertising
market and where the internet is fast enough to produce its fun video
and photo effects without too much lag time.
Those users will be more lucrative than the addition of more people
in other markets, the company argues. Snap on Wednesday reported that it
makes 90 cents per user, down 14 percent from the previous quarter.
Snap so far hasn’t talked publicly about competition from Facebook.
But Facebook has mentioned Snap’s strategy, without mentioning the
smaller company by name. Last month, at Facebook’s developer conference,
Mark Zuckerberg said he was prioritizing development of camera tools as a
step toward an augmented reality-focused world.
Last week, during
Facebook’s earnings report, Zuckerberg said he now considers Facebook to
be ahead of Snap in the strategy Snap invented.
“We were a little late to the trend initially,” Zuckerberg said last
week. “I do think at this point we’re pretty much ahead, in terms of the
technology we’re building. I would expect us to continue leading the
On a conference call after Snap’s report on Wednesday, CEO
Evan Spiegel brushed off concerns about Facebook’s clone features with a laugh.
“If you want to be a creative company, you have got to be comfortable
with and enjoy the fact that people copy your products if you’ve got
great stuff,” Spiegel said. “Just because Yahoo! has a search box
doesn’t mean they’re Google.”
Companies tend to time their initial public offerings so that the
following few quarters show momentum for their business. In this case,
Snap is missing estimates on several fronts, fueling skepticism about
the company’s plan.
“There’s some explaining to do,” said
James Cakmak, an analyst at Monness Crespi Hardt & Co.
After Twitter’s first earnings report in 2014, the shares fell more
than 24% amid skepticism about the company’s user growth.
Following Facebook’s first report in 2012, shares fell 12% on
concern that the social network wasn’t moving fast enough to make money
from its app on mobile phones, where its users were migrating.
recovered in the quarters that followed with advertising product
improvements, while Twitter has continued to struggle.
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