Snap Shares Fall to New Low After 2 Million Users Abandon the App

Snapchat’s business may be improving but its stocks are on a continuous downward trend – especially after the recent quarterly report showed that the photo-sharing app had lost over 2 million users in just a few short months.

Snap released its third quarter earnings report last Thursday showing a drop in its daily users from 188 million in the second quarter to 186 million

Decreasing User Count

Snap released its third quarter earnings report last Thursday showing a drop in its daily users from 188 million in the second quarter to 186 million. Apart from a 1 per cent drop in its user base, the company also reported a negative growth rate of 1.5 per cent in the second quarter. However, a yearly comparison shows that growth is still up 5 per cent in comparison to 2017 Q3.

On a lighter note, the company was able to beat Wall Street’s expectations of $283 million after its third quarter earnings report revealed a revenue of $298 million. The actual EPS loss of $0.12 was also lower that the predicted $0.14. But despite an impressive performance, shares plummeted to  all-time low at $6.99 from $24 last year when it went public.

Snap lost over $325 million in the third quarter, significantly less than the $353 million loss in the second quarter, which shows that the company’s new cost-cutting strategies are working. With a slightly better outlook for the fourth quarter, Snap was able to convince Wall Street to bump up the share prices to $7.57 – a 8.3 per cent increase – after the earnings report was revealed.

But after-hours of trading show the company’s share prices plummeting by 9.3 per cent to $6.31. Since so many investors have taken a short position on Snap’s stock, even the slightest improvement in the company’s performance could have perked up the share prices.

But most investors are hesitant to buy Snap’s shares due to the fear that the  company could soon go out of business. To make matters worse, Wall Street analysts are projecting that the photo-sharing company will continue to lose users in the fourth quarter which will have a negative impact on its revenues.

Promising Outlook for Q4

Even more troubling was the fact that the average revenue per user (ARPU) decreased by 12.5 per cent among Snapchat users in the developing countries. On the other hand, markets like U.S. and Europe returned strong gains of 14 per cent. The company is expecting the revenue to increase to $380 million in the fourth quarter due to the holiday season.

CEO Evan Spiegel remarked that while the company had performed exceptionally well in the developed world, there is so much more untapped growth potential in the rest of the world where mobile users still don’t have access to Snapchat.

He also explained that the 2 million users snapchat lost in the recent quarter were mostly Android users who weren’t able to use the app as well as the iOS users. Suspiciously, the company failed to reports the number of active users in U.S. and Canada in its recent report, but the CEO said that there were over 100 million users from this region who were still active.

The company admitted that the number of daily snaps created and shared by users had dropped from 3.5 billion to 3 billion

Growth and Design Overhaul

Spiegel said in a note that his goal for 2018 was to break-even and slowly move towards profitability the next year. He elaborated that the company’s goal for 2019 is to pick up pace on revenue  growth as well as have free cash flow for the entire year.

While talking to analysts over a conference call, he admitted that app’s android version needs an overhaul to prevent more users from leaving, but quality takes time and money, which means that Snap will have to wait until it reaches profitability in order to reinvest in design and growth.

The company admitted that the number of daily snaps created and shared by users had dropped from 3.5 billion to 3 billion, but as an assurance, Spiegel told investors that more than 60 per cent of the users were still sharing photos every day.

An android design overhaul is even more important if Snap wants to acquire more users in developing countries where iOS phones are less common. The CEO also said that he wants to extend marketing efforts to users who are 34 years old or above, but most of the young users think that adding older generations (parents, bosses, teachers) to the app could sour their perception about the platform.