Snap flops with disastrous Q3 earnings that send shares diving

Snapchat CEO Evan SpiegelMichael Kovac/Getty ImagesSnap CEO Evan Spiegel
  • Snap badly missed expectations for its third quarter as a public company. Its stock dove as a result.
  • Snapchat added 4.5 million users, up merely 3% from the previous quarter. A complete redesign of the app is planned to address the stagnant growth.
  • Snap took a $US40 million charge for misjudging the demand for its Spectacles glasses with excess inventory.


Snap Inc’s
stock plunged in after-hours trading on Tuesday after the company reported a disastrous third-quarter report that revealed widespread weakness throughout the business just nine months after its splashy debut on the public markets.

The company reported smaller than expected user growth, a 60% drop in advertising rates, and a hefty charge due to an overambitious entry into the hardware market.

Additionally, Snapchat’s 27-year-old CEO and founder Evan Spiegel acknowledged that the app, while popular with teens and millennials, is too confusing for a lot of other people to use.

Shares of Snap were down roughly 17% at $US12.55 in after-hours trading on Tuesday, well below their $US17 IPO price earlier this year.

“This quarter was soft across basically every metric as it speaks to a business model which is in a state of major transition since going public,” wrote GBH Insights analyst Dan Ives in a note to investors following Tuesday’s earnings report.

Investor patience, he said, is “starting to wear very thin.”

Here are the key numbers from Snap’s Q3 earnings:

  • Revenue: $US207.9 million, up 62% year-over-year, but below the $US235.5 million expected by analysts.
  • Earnings per share (adjusted): Net loss of $US0.14 vs. $US0.15 expected
  • Daily active users: 4.5 million new users for a total of 178 million, up 3% from Q2.

Falling ad prices and weak user growth

Snapchat added only 4.5 million new users versus the 8 million expected by analysts for the quarter, a sign that its growth is continuing to slow under mounting competitive pressure from Facebook-owned Instagram.

Snap said that its shift to programmatic advertising earlier this year has “made it harder to grow revenues at the rate we would have liked,” with its ad rates dropping sharply by 60% from the year-ago period. Overall ad impressions were up sharply as Snapchat opened up its app to automated advertising services.

The young company admitted to misjudging the success of its first hardware product, Spectacles. A lack of demand for the camera-equipped glasses resulted in a $US40 million charge due “to excess inventory and purchase commitment cancellations.”

To kick-start user growth, CEO Evan Spiegel said that the Snapchat app would be redesigned to make it “easier to use,” a change the company predicts to “be disruptive to our business in the short term.”

Wall Street’s revenue expectations for Snap have been cut in recent months due to slower than expected momentum around its self-service platform for advertisers. Last month, research firm eMarketer slashed its 2017 Snap revenue projection for the second time this year.

Snap has already had multiple rounds of layoffs and plans to slow hiring in 2018, according to an internal email sent by CEO Evan Spiegel to employees and obtained by Business Insider last month. The company had $US2.3 billion in available cash at the end of the third quarter but has significant business costs to contend with, like its $US2 billion, five-year commitment to use Google’s cloud hosting service.

Business Insider covered the highlights from Snap’s earnings call with executives below:

Get the latest Snap stock price here.

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