Snap (SNAP) is down 21% premarket, trading at post-IPO lows after a disappointing debut with its first quarterly report as a public company.
Snap missed sales estimates, reported a larger than expected net loss and fewer than expected daily active users (DAUs).
Snap, the parent company of the ephemeral messaging app Snapchat reported a whopping $2.2 billion net loss based on Generally Accepted Accounting Principles (GAAP). That included $2.0 billion in stock-based compensation. Adjusted EBITDA was ($188) million versus ($93) million last year.
Revenue was up an impressive 286% year-over-year to $149.6 million, however that missed Wall Street estimates by nearly 6%. Snap is rapidly scaling its advertising business on Snapchat, but a top line miss is the last thing investors paying a nose-bleed sales multiple wanted to see in the company's first report as a public company.
What's more, Snapchat added 8 million Daily Active Users during the first quarter. The 166 million first quarter average was just shy of the 167 million expectation.
A growing user base is key for the company to grow in to its frothy valuation. User growth slowed in the second half of last year. Snap blamed bugs on its android app but investors are much more concerned about rising competition from Facebook (FB).
Slowing user growth coincided with Instagram's roll out of a copy-cat stories function last summer. Since then, Facebook has added ‘stories' to its flagship Facebook app and has also copied the innovative augmented reality features that made Snapchat fun and different.
A lack of user growth plagued Twitter (TWTR) investors for years. The unprecedented success of Facebook sets awfully high expectations and stiff competition for any other social network.
Snap did not provide any formal guidance for sales or user growth.
This morning, we are seeing some serious multiple contraction in a stock that was trading at ~25x sales heading in to the report. The sales multiple is still close to 20x at $18/share as sales estimates have come down a bit. The sales multiple is closer to 10x 2018 estimates but there is more risk to these estimates as Snap management is now ‘0-for 1'.
Cantor Fitzgerald upgraded the stock to Neutral this morning while Oppenheimer upgraded it to Buy.