By Adam Fraser
We have seen this before.
“Hot” social network IPOs to great fanfare. “The next big thing” is unleashed to the market and investors price huge amounts of blue sky into the current share price.
Quarter one users come in and disappoint, analysts revise their models, share price gets hammered.
Hard to recall, but this happened to Facebook as well as Twitter. Of course Facebook recovered to quadruple its IPO value to a current market cap of over US$400bn while Twitter still languishes today at a value of $US14bn, around 20% below its value when it listed in 2013.
Two very divergent paths. So which road will Snap Inc (owner of Snapchat) follow?
One thing is for sure – it also disappointed the market with its first quarterly results as a listed company. Users grew, but at a lower rate than the analysts were expecting, and the headline loss of US$2.2bn for a single quarter was somewhat alarming. The share price fell 24% in a single hour.
If you want to dive into the details, you can check the detailed financials , investor presentation and press release around the quarterly numbers. The 10 key take-aways from the Q1 2017 results are below:
- Daily Active Users (DAUs) grew to 166m from 122m a year earlier
- The quarterly growth rate in DAUs was lower than it has been in every preceding quarter (this was the trend which most spooked the market)
- Average revenue per user was US$0.90 compared to $0.32 a year ago, but a higher $1.04 in Q4 2016.
- Revenue was US$149m compared to $38m a year ago
- Net loss was US$2.2bn compared to $104m a year ago – note this figure was inflated by the expense associated with stock issues related to the IPO
- 3 billion daily snaps were created in the quarter compared to 2.5bn per day 2 quarters previously
- USA DAUs were 71m, representing 43% of global users, a ratio that has been broadly consistent for the past 12 months
- USA however drove 86% 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 $18m, broadly consistent with the past 12m when the quarterly amount has varied between $16m and $20m.
- Adjusted EBITDA (removing the impact of stock based compensation) was a loss of US$188m for the quarter, the highest quarterly loss in the period reported (which went back to Q1 2016)
A tough start to life as a listed company for the newest social media kid on the block. As Twitter in particular has found, analysts will focus obsessively on short term user growth almost to the exclusion of every other metric, making long term strategic planning a challenge to execute in the public glare of the listed markets,
Still valued at US$26bn whilst significantly loss making, Snap Inc is learning that when investors price perfection, even the smallest disappointment will lead to the harshest of share price responses.
With Facebook continuing to openly copy and imitate many of Snapchat’s features, and Instagram in particular starting to eat its lunch as its version of Stories grows rapidly, the outlook is unquestionably challenging for Snap Inc.
Snapchat remains the cool nightclub to hang out in, and its loyal, engaged millennial audience is highly attractive to marketers. A pivot into camera products, retail products or AR may be coming, but right now Snapchat is looking more Twitter than Facebook as an investment opportunity.