Snap Can’t Bounce Back in Q2 as User Growth Slows, Stock Dives 5 Percent

Disappearing message company fails to impress investors for second straight quarter

Last Updated: August 10, 2017 @ 1:51 PM

Shares of Snapchat parent Snap Inc. are pulling a disappearing act on its investors after the company posted a flaccid second quarter earnings report on Thursday. Its stock was down about 5 percent in early after hours trading. 

After markets closed, Snap reported $181.7 million in revenue and a loss of $0.16 a share for the three months ended June 30 — falling short of analyst expectations of $186 million in revenue and a loss of $0.14 a share. Snap’s sales represented a modest increase from the underwhelming $150 million in revenue posted in its debut earnings report. 

Snap added 7 million daily active users in Q2 to reach 173 million — a 21 percent year-over-year increase, but only a 4 percent jump from the 8 million it added in its first quarter, showing slower growth. That’s also well below its main rival, Instagram, which recently surpassed 250 million DAUs. And after posting a massive $2.2 billion in losses last quarter — largely due to $2 billion in stock payouts — Snap reined in its spending, but still lost $443 million.

Despite Snap posting $1.05 average revenue per user — a 16 percent jump from its first quarter — it did little to assuage Wall Street’s growing concern the platform is struggling to generate sales from its passionate following.

It had already been a rocky three months for the Venice, CA-based company. Snap shares had dropped more than 40 percent since its uninspiring Q1 report in May, with investors wary of modest user growth, middling revenue and stiff competition from its challengers. Instagram and WhatsApp — both owned by Facebook — each passed the 250 million daily user mark in recent weeks for their version of Snapchat’s “Stories” feature. 

But as Snap’s shares started to slip, it took a few steps towards plugging the holes in its business. With average revenue per user falling 14 percent last quarter to $0.90 a share, Snap looked to beef up its array of tools for advertisers. Snap acquired a startup in June to track if its ad filters convert to in-store foot traffic. Following the initial excitement surrounding its Spectacles sunglasses last fall, sales quickly waned; Snap looked to boost sales by selling Spectacles directly on Amazon starting last month. 

At the same time, Snap recently inked a $100 million partnership with Time Warner to create content and post ads on its platform. It also continued to add programming to its app, with NBC News launching a twice-daily show last month. 

Still, the benefits of its efforts weren’t realized in the second quarter, as its sales and middling user growth will do little to persuade skeptical investors.

The company will hold a conference call at 5:00 p.m. ET to discuss the earnings. 

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