Snap’s debut earnings miss expectations, stock price tumbles

Snap Inc's revenue declined sequentially in line with seasonal conditions, but analysts were expecting more

Snapchat parent company Snap Inc. released its first numbers as a publicly traded company, with revenue for the three months to March 31 at $149.6m, up 286% year-over-year, equating to a $2.2bn loss — but below analyst expectations, with its share price dropping by over 20% after the numbers were released.

Daily active users (DAU) numbered 166 million, an increase of 36% year-over-year, although analysts had expected its DAU count to be closer to the 188 million mark, with earlier estimates forecasting that the company would report revenues ranging between $158m and $173m.

The outfit’s average revenue per users (ARPU) $0.90 during the three-month period was also down 14% sequentially (though this can be attributed to seasonal factors), according to the numbers it released with Snap's leadership claiming that users spend as much as 30 minutes per day with the service.

Snap’s sequential dip in revenue for the period was included in the company’s initial guidance, with the net loss for the period (in excess of $2.2bn) attributed in part to costs associated with its initial public offering (IPO) according to the company’s leadership.

During the company’s subsequent earning’s call Evan Spiegel, Snap Inc’s chief executive officer, noted to investors that its priorities during its debut period on the public markets were: performance, quality and automation.

The company’s share price dropped by over 20% in the immediate aftermath of the release of the numbers as investors continued to rationalize their expectations of the company, whose IPO was arguably the highlight of the year in the tech and media sector, given the steep share price rise in the wake of its float in March.

Brian Wieser, an influential senior advertising and media analyst at Pivotal Research, issued a note entitled “Results vs. Expectations” after the company’s earning’s call, where he advised investors that its earnings were “light”, and the release “represents a surprising element of seasonality in the business, and risks of less growth ahead than we previously expected”, rating the stock a sell.

He went on to note that seasonality (i.e. - when the peaks and troths of revenues can be predicted due to seasonal factors, such as more ad spend in the lead up to the holiday season), which tends to be commonly associated with more mature companies, as opposed to high growth digital media outfits, added to the overall numbers and were “somewhat disappointing”.

He went on to state: “The advertising growth rate was actually slower than the revenue figures would suggest, as hardware sales were relatively significant at $8m in the quarter, up from $4m in 4Q16 and nothing in the year-ago period.

“Of the advertising revenue, Snap-sold revenue was $129m and partner-sold revenue was $12.3m. As a percentage of revenues the Snap-sold and partner-sold revenue accounted for 94% of the quarter’s revenue vs. 97% of 4Q16 and 99% of full year 2016 revenue.”

In his risk evaluation, Wieser went on to state: “Snap’s risks include heightened uncertainty, the competitive environment [i.e. - the dominance of Facebook and Google of the digital advertising landscape], slowing growth in the user base, a lack of a track record in building a successful business, high costs and ongoing dilution as well as sub-optimal organizational design and corporate governance.”

However, he went on to laud the company’s efforts to launch new ad products as evidence of Snap “establishing itself as a platform that should sustain its position in the advertising marketplace.”

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