Published: Thu, May 11, 2017
Science | By Cecil Little

Snapchat's growth stalls in Facebook's shadow in 1Q report

But it's not going so well.

To say that Wall Street was disappointed in the first earnings report of Snap Inc., the parent company of the app Snapchat, might be an understatement, as the company reported a $2.2 billion loss and lower than estimated revenue.

The $3.9bn Snap raised at its March offering was southern California's biggest-ever stock market debut. During the Q1 of 2016, the daily active Snapchat users were 122 million.

Snapchat has come under intense pressure in recent months from Facebook, which has added Snapchat-like features to its network of Messenger, Instagram and WhatsApp. Because the company went public in the quarter, it realized a gargantuan amount of stock-based compensation to employees whose options vested at IPO time, which accounted for almost $2 billion of that total. Facebook had similar costs of roughly $1.3 billion.

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Snaps average revenue per user rose to $0.90 from $0.32 a year ago, when the firm was beginning to monetize its flagship product.

Digital marketing firm eMarketer in March had trimmed its 2017 U.S. advertising revenue forecast for Snap by $30 million to $770 million, citing higher-than-expected revenue sharing with the company's partners. And that still undershot the $158 million analysts polled by FactSet had expected. Not to miss out on the trend, Facebook also launched disappearing stories this year.

The improvements are "generating an increase in overall time spent and engagement", Spiegel said on the call.

The trend makes Facebook look invincible, and it makes Snap look like Twitter. You could use it with just one other person, if you wanted.

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Britton sees challenges for Snapchat's non-messaging features, such as stories and a "discover" option that lets users keep up with news, sports or celebrities.

In a press release, Snapchat stated the new features would serve to reduce frustration and increase creativity. That Facebook is going after Snapchat is not news, but the battle has now become somewhat ugly. The stock was down 23 percent as the call, a first for CEO Evan Spiegel, chief strategy officer Imran Khan and CFO Drew Vollero, wrapped up Wednesday afternoon.

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The slowing rate of growth is not surprising for the USA market, given Snapchat's huge popularity among its core group of young users. eMarketer estimates that 84.4% of 12- to 17-year-olds, and 78.6% of 18- to 24-year-olds, use the app at least once per month.

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Snap has also reportedly tried to grow revenue by boosting advertising revenue per user, not by rapidly expanding its user base.

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