Snap soared way up after beating Wall Street expectations — then plummeted on signs of weakness to come

Matt Winkelmeyer/Getty ImagesCo-Founder and CEO of Snap Inc. Evan Spiegel.

Snapchat’s user base is in decline and investors are panicking.

On Tuesday the messaging app’s parent company, Snap Inc., reported its Q2 2018 earnings, and it included its first-ever decline in daily active users following a highly controversial decline.

But it posted otherwise unusually strong numbers – as well as a $US250 million investment from a Saudi prince – that sent its stock soaring as much as 13%, before it came crashing down and bouncing all over the place again following renewed concerns around daily user numbers going forward.

The Los Angeles-area company beat Wall Street’s expectations for both revenue and losses, and its share price surged by more than 13% on the news in after-hours trading to nearly $US15, before briefly stabilizing around $US14 – an overall gain of about 6%.

But once the company began its call with analysts, the stock slid as analysts expressed concerns around forward guidance – dropping down 5% before recovering slightly and seesawing around where it was trading during the day.

Tuesday also brought the surprise news of a $US250 million investment in Snap by the Saudi Prince Alwaleed bin Talal.

Here are the key numbers for the quarter, versus what Wall Street was expecting (via Bloomberg data):

  • Revenues of $US262.3 million, versus $US249.8 million expected), up 44% year-on-year
  • A loss of $US0.14 per share (non-GAAP) versus a loss of $US0.18/share expected
  • 188 million daily active users versus 193 million expected, down 2% from Q1 2018

Analysts did not have high hopes for the company’s results, and expected flatlining daily active user numbers as it continues to struggle against Facebook-owned Instagram. In this respect it failed to meet even those expectations, with daily active users dropping to 188 million.

In prepared remarks in a call with analysts, CEO Evan Spiegel attributed this drop-off to the app redesign: “While our Monthly Active Users continued to grow this quarter, we saw a 2 per cent decline in our Daily Active Users. This was primarily driven by a slightly lower frequency of use among our user base due to the disruption caused by our redesign. It has been approximately six months since we broadly rolled out the redesign of our application, and we have been working hard to iterate and improve Snapchat based on the feedback from our community.”

The company went public in March of 2017, and has suffered largely ugly numbers ever since. Last quarter, its stock dropped by as much as 24% after releasing its Q1 earnings report.

Its results come at the tail end of a brutal earnings season for Silicon Valley, which saw huge chunks torn off the valuations of Twitter and Facebook following disappointing numbers.

Saudi Arabia’s Prince Alwaleed bin Talal, a well-known tech investor, announced on Tuesday that he had invested $US250 million into the company, in return for a 2.3% stake.

The prince had previously been rumoured to be interested in investing in Snap prior to its IPO, though in 2015 a source told Reuters there were “no plans to invest.”

Snap also released guidance for Q3 2018 for the first time. The company is expecting revenues of between $US265 million and $US290 million for the quarter, and an EBITDA loss of between $US185 million and $US160 million.

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