It’s A Miss: Snap’s $2.2B Earnings Fiasco

Snap Inc. (SNAP) shares dropped nearly 25 percent in after-hours trading as investors learned the tech and social media company had missed the expectations for the first quarter.

In its first earnings report since going public earlier this year, Snap Inc. reported revenue of $149.65 million for Q1 2017, missing Wall Street’s expectations of $159 million. Revenue was up 286 percent from $39 million in the same period last year. The company also reported an adjusted net loss of $0.20 EPS, again a miss against an expected loss of $0.16 per share.

For the quarter, Snap Inc. generated some $8.3 million in non-advertising revenue which the company attributed primarily to sales of Spectacles.

The $2 billion net loss Snap Inc. saw in Q1 was attributed to stock-based compensation related to its IPO back in February.

Snap Inc. did manage to see some strong growth in its daily active user (DAU) base since going public. The company’s Snapchat mobile app saw 166 million DAUs in Q1, up 36 percent from 122 million DAUs in the same period last year—though growth has slowed considerably on a quarter by quarter basis.

Globally, Snapchat continued to see most of its user growth in Western markets, with 76 percent of its DAUs logging in from North America and Europe. Snapchat reported daily sessions averaging of “over 30 minutes” per day per user.

The question is whether Snapchat can outpace Facebook’s multiple entries into the “Stories” game.

While Snap Inc. developed more “Shows” with television networks for its Discover section, a Search function for its Stories feature along with new creative tools and features to stay ahead of Facebook and Instagram, the numbers aren’t keeping pace.

Snap Inc. is already losing to Instagram, whose Stories DAUs recently surpassed that of Snapchat, hitting over 200 million in Q1. Facebook-owned WhatsApp’s story feature is also close on Snap’s tail, with 155 million DAUs.

In his prepared statement during the company’s earnings call, Snap Inc. CEO Evan Spiegel noted that the company had primarily focused its efforts on the performance and quality of the company’s Snapchat application, as well as automation across content products and advertising business.

Spiegel said he considered the efforts a success, especially when it came to Android OS users—a key demographic in global markets the company hopes to grow its presence in.

“We were able to more than double the number of net additional users coming from Android devices compared to last quarter,” Spiegel said. “Android users accounted for over 30 percent of net additional users this quarter—and we were also able to make headway in rest-of-world largely due to improvements in Android.”

Snap Inc. reported that engagement rose to hit 3 billion images created daily, along with an increase in sessions, which came in at over 30 minutes on average, up from 25 minutes as reported at the time of the company’s IPO.

In the ad realm, Snapchat reported that it had made significant progress in automating its advertising business in Q1. Spiegel said that over 20 percent of Snapchat ad impressions were delivered programmatically, meaning the company was able to earn more per impression.

Snap Inc. saw its average revenue per user increase 181 percent year-on-year to hit $0.90.