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Aug 10, 2017

Snap shares drop as daily active user numbers disappoint

CFRA cuts price target for Snap after stock dives on Q2 earnings

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Snap Inc (SNAP.N) Chief Executive Evan Spiegel said on Thursday neither he nor co-founder Bobby Murphy would sell shares of the Snapchat parent this year, but that failed to soothe investors after quarterly results fell short of analyst expectations.

Shares of the Los Angeles company slumped nearly 17 per cent in extended trading. The expiration at the end of July of a lock-up period preventing insiders from selling shares came as the stock was already under pressure from worries about user growth.

"Given the amount of speculation around the lock-up expiration, I feel it is important to note that Bobby and I will not sell any of our shares this year," Spiegel said on a call with analysts. "We believe deeply in the long-term success of Snap."

Snap reported daily active users and second-quarter revenue that came in below analyst expectations on Thursday, sending shares down to US$12 in extended trading. The stock debuted on March 2 at US$24, compared with an initial public offering price of US$17.

Investors worry about the company's ability to vie for users and advertising dollars with rivals like Facebook Inc's Instagram, which has features similar to the Snapchat disappearing messaging app.

Snap said its daily active users (DAUs) rose to 173 million in the second quarter, short of the 175.2 million DAUs expected by analysts according to financial data analytics firm FactSet. DAUs were 143 million in the year-earlier quarter and 166 million in the previous quarter.

Average revenue per user was US$1.05 in the quarter, Snap said, below the US$1.07 expected by analysts according to FactSet but up from 50 cents US a year earlier.

"There is a lot of heavy competition and the company has not figured out how to monetize its audience yet," said Salvatore Recco, executive vice president at 50 Park Investments, an investment advisory service. "Until they do, investors will likely continued to be disappointed."



Instagram Stories allows users to post images and video that disappear after 24 hours, a feature that replicates Snapchat and is fast becoming more popular than Snapchat itself.

Now one year old, Instagram Stories had more than 250 million users as of Aug. 2, up from about 250 million in June and 200 million in April.

Since its debut on the public markets, Snap has described itself as a "camera company," but has given little indication on plans to move into hardware or its broader strategy.

"If that's how [Spiegel] wants to play his cards that's fine, but there's going to be a trade off," said Jason Moser, analyst for Motley Fool. "And that's going to be reflected in the stock price.”

Spiegel said the company's focus will be on building creative tools that give users more ways to create snaps. Spiegel said this plan creates a cycle where users create and view more snaps.

As an example, Spiegel cited the company's World Lenses feature released this quarter. The executive pointed to Snapchat's dancing hot dog, saying the animated character was viewed more than 1.5 billion times in the app.

"Our dancing hot dog is most likely the world’s first augmented reality superstar," Spiegel said.

Snap said its revenue more than doubled to US$181.7 million in the quarter, below analyst expectations for US$186.2 million. The company earns some revenue from branded or sponsored filters and lenses, but the bulk comes from advertisements.

Net loss widened to US$443.1 million, or 36 cents US per share, from US$115.9 million, or 14 cents US per share. Excluding certain items, Snap lost 16 cents US per share in the latest quarter.

Snap’s results came on the heels of Blue Apron Holdings Inc (APRN.N) reporting a wider-than-expected quarterly loss, erasing nearly a fifth from the meal-kit delivery service’s market value on Thursday.