Sun, May 14, 2017 - Page 15 News List

Snapchat faces harsh reality check after earnings miss

The bulk of the company’s US$2.2 billion loss came from stock awards given to executives, who refused to answer investors’ questions and instead ‘talked trash’ about their competitors, notably Facebook

By Rob Lever  /  AFP, WASHINGTON

A Snapchat logo is pictured through broken glass in an illustration on Thursday.

Photo: Reuters

Snapchat’s ambition to become the next big social media platform hit a brutal reality check with the first earnings report from parent company Snap Inc.

The US$2.2 billion loss reported on Wednesday for the first quarter, along with weaker-than-expected revenue and sluggish user growth, prompted a wave of selling and harsh comments from analysts about the firm known for its disappearing messages.

Snap shares on Thursday plunged 21.5 percent to close at US$18.05, the lowest level since its March share offering, as optimism over its prospects to challenge Facebook Inc faded.

Snap disappointed analysts with reported revenue of US$149.6 million in the three months ending in March.

That was up 286 percent from a year ago, but below Wall Street estimates of about US$158 million and a significant miss for the fast-evolving social media segment.

Snap said the number of daily active users grew to 166 million at the end of the quarter, a 36 percent increase from a year earlier, but just 5 percent higher than at the end of last year.

“The conclusion from all of this is that Snap’s future is that of a niche company dominating narrow segments of the population rather than a company with broad mass market appeal, and that has significant implications for its valuation,” Jackdaw Research’s Jan Dawson said in a blog post.

Richard Windsor, an analyst who writes the Radio Free Mobile blog, said Snap’s growth “is not nearly good enough” given its lofty valuation.

Snap’s challenges are difficult because Facebook is introducing features based on Snapchat for its main social network as well as its Instagram platform.

“This is where the problems begin, as Facebook can easily afford to outspend Snap in every instance,” Windsor said.

Analysts also expressed surprise over Snap’s apparent dismissal of the threat from Facebook.

Asked if he fears the social media titan could crush his company, Snap’s chief executive Evan Spiegel said he remains committed to a strategy “to deliver value through creativity.”

“You have to get comfortable with the fact that people are going to copy you if you make great stuff,” he said.

Dawson said Spiegel and other Snap executives on the earnings call “seemed keener to talk trash about competitors, notably Facebook, than in really answering investors’ pressing questions about user growth,” Windsor said.

“The bombastic tone would have been justifiable if the company’s growth hadn’t slowed significantly since the introduction of Instagram Stories with no signs of recovery, but in the current context, it feels like naivety or denial instead,” the analyst added.

Most of the loss came from US$2 billion in stock awards, including to chief executive officer Spiegel, the financial results showed.

“What a disaster,” tweeted Ross Gerber of the investment firm Gerber Kawasaki. “Lost $2 bil!!!! Took the money from shareholders gave to management.”

The loss from operations was US$188 million, excluding stock awards and other special items.

Snapchat is best known for its smartphone messaging, but has also developed partnerships with numerous media outlets eager to reach its audience with news, video and other content.

Some analysts remain upbeat about Snap despite the ugly earnings report.

It is “way too early” to write off Snap or compare it to Twitter Inc, Mark Mahaney of RBC Capital Markets said.

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