Insider Business Snapchat shares sink 16 percent as redesign weighs on results

Snapchat shares sink 16 percent as redesign weighs on results

Snap Inc fell short of Wall Street forecasts for revenue and regular users on Tuesday after a redesign of its Snapchat messaging app turned off some long-time fans and advertisers, sending its shares tumbling 16 percent.

Revenue growth will likely slow substantially in the second quarter, the company said, showing it still faces an uphill battle after an app overhaul meant to fend off bigger rival Facebook Inc as it adds Snapchat-like features.

The number of daily active users on Snapchat, crucial for generating advertising revenue, rose to 191 million in the quarter ended March 31, short of consensus expectations of 194.15 million, according to Thomson Reuters I/B/E/S.

The figure was 15 percent higher than a year earlier, compared with growth of 18 percent in the previous quarter.

Snap shares plunged 16.5 percent to $11.77 in after-hours trading, extending a slide in the stock since February. Shares had surged 48 percent on Feb. 7, to $20.75, topping Snap’s IPO price of $17 for the first time in months, on hopes that the redesign was working. The stocks has mostly fallen since.

“The redesign didn’t just make users unhappy, it also made advertisers more concerned,” said eMarketer analyst Debra Aho Williamson. “That’s not a good position to be in.”

On the plus side, Williamson said, “Snapchat loyalists are highly engaged, using the app multiple times per day. And Snapchat’s ad formats are still among the most creative.”

For the quarter ended in March, total revenue rose 54 percent from the same period a year earlier to $230.7 million in what was Snap’s fifth quarterly earnings as a public company. Analysts on average had expected revenue of $244.5 million.

Company executives acknowledged that the new design hurt results but said they were sticking with the plan to keep content from friends separate from other publishers. The approach will propel growth in the long run, they said.

“The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both,” Chief Executive Evan Spiegel said on a conference call with analysts.

“As we have mentioned on our past two earnings calls, a change this big to existing behavior comes with some disruption.”

The redesign was meant to draw in a broader audience, but sparked criticism from users including celebrities Kylie Jenner and Chrissy Teigen. The changes also created some “apprehension” among advertisers, Spiegel said.

Chief Strategy Officer Imran Khan said the bad publicity surrounding the redesign made some advertisers rethink their use of Snapchat.

“When there is a lot of negative news in the press every day, it does give people pause,” Khan said, saying that Snapchat will counter that by providing better measurements of return on investment.

User growth at the company’s disappearing-message app has repeatedly fallen short of Wall Street’s expectations since its heavily hyped initial public offering in March last year.

The Venice, California-based firm posted a net loss of $385.8 million, or 30 cents per share, compared with a loss of $2.21 billion, or $2.31 per share, a year earlier. Snap’s adjusted loss per share of 17 cents was in line with analyst expectations.

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Source: Reuters

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