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Snapchat faces harsh reality check after earnings report

Parent company Snap’s first earnings report showed a US$2.2 billion loss for the first quarter, but CEO Evan Spiegel claims not to be worried

PUBLISHED : Thursday, 18 May, 2017, 6:31am
UPDATED : Friday, 19 May, 2017, 5:40pm

Snapchat’s ambition to become the next big social media platform hit a brutal reality check with the first earnings report from parent company Snap.

The US$2.2 billion loss reported earlier this month for the first quarter along with weaker-than-expected revenue and sluggish user growth prompted a wave of selling and harsh comments from analysts about the firm known for its disappearing messages.

Snap said the number of daily active users grew to 166 million at the end of the quarter, a 36 per cent increase from a year ago but just five per cent higher than at the end of 2016.

“The conclusion from all of this is that Snap’s future is that of a niche company dominating narrow segments of the population rather than a company with broad mass market appeal, and that has significant implications for its valuation,” Jan Dawson of Jackdaw Research said in a blog post.

Richard Windsor, an analyst who writes the Radio Free Mobile blog, said Snap’s growth “is not nearly good enough” given its lofty valuation.

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Facebook is introducing features based on Snapchat for its main social network as well as its Instagram platform.

“This is where the problems begin, as Facebook can easily afford to outspend Snap in every instance,” Windsor said.

Analysts also expressed surprise over Snap’s apparent dismissal of the threat from Facebook.

Asked if he feared the social media titan could crush his company, Snap’s chief executive Evan Spiegel said he remained committed to a strategy “to deliver value through creativity.”

“You have to get comfortable with the fact that people are going to copy you if you make great stuff,” he said.

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Dawson said Spiegel and other Snap executives on the earnings call “seemed keener to talk trash about competitors, notably Facebook, than in really answering investors’ pressing questions about user growth.”

“The bombastic tone would have been justifiable if the company’s growth hadn’t slowed significantly since the introduction of Instagram Stories, but in the current context, it feels like naivety or denial instead,” the analyst added.

Snapchat is best known for its smartphone messaging, but has also developed partnerships with numerous media outlets eager to reach its audience with news, video and other content.

Some analysts remain upbeat about Snap despite the ugly earnings report.

It’s “way too early” to write off Snap or compare it to Twitter, Mark Mahaney of RBC Capital Markets said.

“Snap has become an innovation leader – for both consumers and advertisers – in the single fastest advertising medium today, mobile,” he said. “It has also emerged as one of the leading media platforms for millennials.”