This afternoon shares of social media application Snap (SNAP 12.81, -2.31 -15.3%) are getting punished mainly as a result of last night’s reported weak Q3 revenues and slower user growth, despite a smaller than expected loss per share.
If you’re not familiar with Snap at this point you’re likely not a millennial or someone whose last name is Kardashian. Snap’s user base is comprised mainly of those 18-24 years old with a smaller segment from 25-34 and smaller so from the 35+ category. Publicly available shares debuted in the US in early-March of this year at $24 after pricing the IPO at $17 per share. Skeptics were not difficult to find in the early going, as many on the Street questioned monetization and slowing user growth for their cautious views.
Getting to the results, the bright spot of the period was SNAP reported a smaller than expected loss per share of $0.14. The bad news was that the company missed market expectations for Q3 revenues, reporting 62.2% growth to about $207.9 million. Additionally, advertising revenues slowed as last quarter the company reported ad revenue growth of better than 140%, while in Q3 ad revenue growth was up only 59% -- to $204 million.
What’s worse, SNAP’s user growth was worse than the Street was expecting. Daily Active Users grew to 178 million in Q3, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
Average revenue per user was $1.17 in Q3, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
Also in the period, SNAP recorded $39.9 million of charges related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.
In light of the weak revenue growth – especially on the ad side – and continued feedback that the app can be difficult to use, the company has begun a redesign. As a result, management sees some disruption to the business in the short term.
Then this morning current shareholder, Chinese-based Tencent (TCEHY) announced it had acquired an additional 145,778,246 shares of SNAP. Commentary about the additional capital mainly stated that Tencent believes in the relationship and wants to continue to share ideas with management. The announcement was made in the premarket session in the US, and the stock briefly recouped a portion of the post-earnings losses. That rally would not last long, though.
SNAP’s stock has been cut down to size since debuting on the public markets; currently, shares hold losses of worse than 46% (for those not included in the IPO) since debuting on US exchanges. News of the redesign and slower than expected user growth puts an obvious weight on today’s action.