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Snap Misses User-Growth Estimate as Facebook Copying Takes Toll

Snap’s growth fell short of estimates, feeding fears that aggressive competition from Facebook is blunting the younger social media company’s potential just months after its IPO.
Snapchat app | Source: Flickr/pestoverde
By
  • Bloomberg

LOS ANGELES, United States — Snap Inc.'s growth again fell short of estimates, feeding fears that aggressive competition from Facebook Inc. is blunting the younger social-media company's potential just months after its initial public offering.

The Los Angeles-based company said daily active users reached 173 million in the second quarter, compared with 166 million in the prior period. Analysts polled by Bloomberg had expected 175 million on average. Revenue also disappointed, and the shares tumbled in late trading.

Since its public debut in March, the maker of the Snapchat mobile application for sending disappearing photo and video has said its app would become more popular as the company innovates and adds features. In the second quarter, Snap added a maps function for users to see where friends are, as well as a search section. Yet rival Facebook has been successfully copying some of Snap’s key features on its larger social-media properties, drawing users that may otherwise have downloaded Snapchat — but now see less use for the standalone app.

Facebook is also exerting pressure in the mobile advertising market. Snap said quarterly revenue was $181.7 million, missing the $185.8 average estimate of analysts surveyed by Bloomberg. While Snap has been updating its offerings to give advertisers more sophisticated options, the company has been struggling to prove it can secure its position in a market dominated by Facebook and Alphabet’s Google Inc.

This was a "make or break quarter" for Snap, James Cakmak, an analyst at Monness, Crespi Hardt & Co., said in a note to investors. "Snap has tremendous potential if it can capitalise on the opportunity in front of it as an alternative platform for advertisers," but the company is "under pressure from multiple fronts."

The company has been urging investors to think of it as different from Facebook. For example, its app works more like a messaging product with a curated media section — it doesn't have a feed with ads slotted in like Facebook's namesake network and its Instagram app do. Snap chief executive officer Evan Spiegel has also said the company isn't focused on getting as big as possible, like Facebook. Instead, it wants to add users in the most lucrative markets and get them more deeply addicted. Snap reported average revenue per user of $1.05 in the second quarter, with most of its growth coming from North America.

The company’s shares slid as low as $11.57 following the report, then recovered to trade down about 4 percent. The stock has slumped 19 percent since Snap’s March 1 IPO at $17 a share, closing at $13.77 on Thursday.

By Sarah Frier; editors: Jillian Ward, Andrew Pollack.

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