Snap Inc.’s growth again fell short of estimates, feeding fears that aggressive competition from Facebook Inc. is blunting the younger social-media company’s potential just months after its initial public offering.
The Los Angeles-based company said daily active users reached 173 million in the second quarter, compared with 166 million in the prior period. Analysts polled by Bloomberg had expected 175 million on average. Revenue also disappointed, and the shares tumbled as much as 18 percent in late trading.
Since its March public debut, the maker of the Snapchat mobile application for sending disappearing photos and videos has said it would become more popular as the company innovates and adds tools. In the second quarter, Snap added a maps function for users to see where friends are, as well as a search section. Yet rival Facebook has been successfully copying some of Snap’s key features on its larger social-media properties, drawing away users that might otherwise have downloaded Snapchat.
Facebook is also exerting pressure in the mobile advertising market. Snap said quarterly revenue was $181.7 million, missing the $185.8 million average estimate of analysts surveyed by Bloomberg. While Snap has been updating its offerings to give advertisers more sophisticated options, the company has been struggling to prove it can secure its position in a market dominated by Facebook and Alphabet’s Google Inc.
This was a “make or break quarter” for Snap, James Cakmak, an analyst at Monness, Crespi Hardt & Co., said in a note to investors. “Snap has tremendous potential if it can capitalize on the opportunity in front of it as an alternative platform for advertisers,” but the company is “under pressure from multiple fronts.”
The company’s shares slid as low as $11.31 in extended trading following its earnings release. The stock has slumped 19 percent since Snap’s March 1 IPO at $17 a share, closing at $13.77 in New York on Thursday.
On a call with investors Thursday, co-founder and Chief Executive Officer Evan Spiegel dismissed the threat from rival services.
“We’ve always been last to market competing against giant companies, and we’ve historically been able to grow our business in markets that are highly competitive and saturated by our competitors because we’re so focused on innovation,” he said.
Spiegel has been urging investors to think of Snap as different from Facebook. For example, the Snapchat app works more like a messaging product with a curated media section — it doesn’t have a feed with ads slotted in like Facebook’s namesake network and its Instagram app The company isn’t focused on getting as big as possible, like Facebook. Instead, it wants to add users in the most lucrative markets — such as the U.S. — and get them more deeply addicted.
“We’d have to add more than 10 million daily active users in the rest of world for every 1 million daily active users in the U.S. and Canada in order to make the same amount of money,” Spiegel said.
Snap reported average revenue per user of $1.05 in the second quarter, with most of its growth coming from North America, bolstering the company’s argument that it’s growing in the right places. Daily active users on average posted 20 snaps a day. Users under 25 years old spent 40 minutes a day on Snapchat, compared to the 32 minutes a day for that age group that Instagram reports.
The company reported a net loss in the period of $443.1 million, or 36 cents a share, compared with a loss of $115.9 million, or 14 cents, a year earlier.
The stock also traded lower last week as some inside investors got the ability to sell their shares for the first time, after a lockup period following the IPO. The first lockup expired July 31. Spiegel said he and co-founder Bobby Murphy won’t sell any of their shares this year, even once they’re free to do so.
As Snap becomes cheaper, the company could be attractive to acquirers, said Shebly Seyrafi, an analyst at FBN Securities. Spiegel, who has the majority of the voting power along with Murphy, is unlikely to want to sell this early, Seyrafi wrote in a note to investors.
“However, if Facebook continues to shamelessly copy Snap’s features and there is no clear road ahead for Snap to become net income or free cash flow positive, Mr. Spiegel’s position may change,” Seyrafi said.