Published: Sat, May 13, 2017
Money | By Armando Alvarado

Snapchat parent company reports £1.7bn loss in first earnings report


Snap Inc., the parent company of image and video sharing app Snapchat, reported their quarterly financial results for the first time since going public on Wednesday, and it isn't pretty.

The companys stock dropped 23 percent in after-hours trading following the report, wiping a staggering $6 billion off the companys value, according to Reuters. Cantor Fitzgerald upgraded shares of Snap from an underweight rating to a neutral rating and decreased their price objective for the stock from $18.00 to $17.00 in a research report on Thursday. For advertisers, the biggest hurdle is "education" about how effective Snap's products can be, he said. Unlike Facebook, Twitter or Instagram, Snapchat isn't connecting networks of people. Years later, Facebook is thriving while Twitter flounders. Snap's user growth slowed down and revenue was below Wall Street expectations for the quarter. When compared to the 158 million that Snap had by Q4 2016, however, the growth is only at a dismal 5 percent and that's what touched a nerve in investors. Monness, Crespi, Hardt & Co Inc had pegged them even higher at 173 million.

A number of institutional investors have recently added to or reduced their stakes in SNAP.

In a report last month, eMarketer noted that in the past Facebook and Instagram added new features similar to Snap's to boost their appeal, and that Snap has recently started doing the same by introducing new self-service tools for marketers.

Matt Britton, CEO of social media marketing company Crowdtap and an expert on millennials, believes Snapchat has "gotten ahead of itself" in pushing out new features, when what it does best - and what it's most used for - is one-on-one messaging.

Snap's daily active users (DAUs), on the other hand, rose 36.1 percent to 166 million in the first quarter from a year earlier, marking a slowdown from the 47.7 percent rise for the fourth quarter and 62.8 percent jump for the third quarter.

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

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".

Nearly $2 billion of Snap's $2.2 billion loss in the January-March period involved stock compensation costs related to the company's initial offering. These features aren't what many users go to Snapchat for. The company rebranded as Snap Inc a year ago, and moved into the hardware space with Spectacles, its colorful sunglasses that record short videos to post on Snapchat.

Similarly, average revenue per user (ARPU) was $0.90 in the first quarter, an increase of 181% over the same period a year ago when these revenues were $0.32.

Snap receives some revenue from branded or sponsored filters and lenses, but depends on advertising dollars for the bulk of its overall revenue.

The total USA digital advertising market is meanwhile expected to reach $83 billion, according to eMarketer, up almost 16 percent from previous year.

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