By Adam Fraser
Snapchat continues to experience a very bumpy ride as a listed company.
I have previously written about its disappointing first quarter and second quarter numbers delivered post IPO. This pattern continued – and if anything accelerated – as it delivered its third set of quarterly numbers. The already pressured share price fell a further 17% in response and now sits well below the initial IPO price.
If you want to dive into the details, you can check the detailed financials, investor presentation and press release around the quarterly numbers. If you want a quick summary, the 10 key takeaways from the Q3 2017 results are below:
- Daily Active Users (DAUs) grew to 178m from 173m in the prior quarter (2.9% growth) and 153m a year ago (16.3% growth).
- Average revenue per user was US$1.17 compared to $1.05 last quarter and $0.84 a year ago – this is well below the levels achieved by Facebook of over $5.
- Revenue for the quarter was US$208m compared to $182m last quarter (14.3% increase) and $128m a year ago (62.5% increase).
- The user and revenue growth was significantly under the level expected by the market, leading to the negative response in the share price.
- Net loss was a staggering $443m for the quarter, identical to the prior quarter.
- Instagram stories and WhatsApp status now have 300m users, illustrating the impact competitors have had by imitating key aspects of Snapchats originally unique offering.
- USA DAUs were 77m, representing 43% of global users, a ratio that has been broadly consistent for the past 12 months. Whilst US users were growing slightly, flat user numbers in Europe will be a concern to Snapchat management.
- The USA, however, drove 80% of global revenues, showing the more rapid advertiser adoption in the company’s home location compared to the rest of the globe.
- Capital expenditure for the quarter was $26m, a significant increase on the $19m in the prior quarter – another concern for investors.
- Adjusted EBITDA (removing the impact of stock-based compensation) was a loss of US$179m for the quarter, slightly lower than the prior quarter.
A quote from one analyst summed up the mood – “This quarter was soft across basically every metric as it speaks to a business model which is in a state of major transition since going public.”
Snapchat is learning what Twitter has learned over recent years – it’s no longer about performance in absolute terms, but performance relative to what the market expects and has “baked in” to the share price.
One reason flagged by management for the revenue miss vs. expectations was the shift from a direct advertising sales model to an auction-based bidding system (a la Google) for selling advertising. While Snap hopes this will make it easier to cheaply scale its ad business in the future, this caused a massive 60 percent drop in the cost per ad impression year-over-year.
Still valued at circa US$16bn while significantly loss-making, Snap Inc is learning that when investors price perfection, even small disappointments will lead to the harshest of share price responses.
Snapchat is growing its user and revenue base. But its losses are significant and consistent, while the glare of the public markets can be an uncomfortable environment to innovate, evolve and pivot whilst also attempting to drive profitability.
Snapchat has by no means completely lost its lustre while it’s loyal and engaged millennial audience remains highly attractive to marketers. However, competition from Facebook and Instagram is fierce and much of it’s IP has been easily imitated. The road ahead does not look to be an easy one as Snapchat attempts to justify what remains a massive valuation relative to its actual financial performance.