Markets

Snapchat parent company's value plummets after earnings report

Snapchat parent company's value plummets after earnings report

Snap's shares tumbled 23 percent in after-hours trading on Wednesday to wipe some $6 billion from its market value, a humbling reversal for the company after its red-hot March initial public offering, the biggest for a United States tech company since Facebook Inc in 2012. The drop comes after the first earnings report since the company went public showed a slowdown in user growth and revenue, RT reports.

The loss for the California firm known for its disappearing messages reflects some US$2 billion in stock compensation awarded at the time of the company's initial public offering. But with Snap continuing to lose staggering amounts of money - more than $2 billion in the first three months of the year alone - conventional metrics don't apply.

The companys stock dropped 23 percent in after-hours trading following the report, wiping a staggering $6 billion off the companys value, according to Reuters.

While Snapchat now has 166 million active daily users, it only added eight million in the quarter just closed, compared to 13 million in the year-ago quarter. Co-founder and chief executive Evan Spiegel received a $750 million bonus for taking the company public.

"Just because Yahoo has a search box doesn't mean they're Google", he said.

Snapchat has tried to become more like its bigger rival by courting new users and, with them, advertisers. Snap added 3 million new users in North America in the first quarter and added 3 million new users in Europe.




Analysts estimated that Snap needed to make at least $158 million for this quarter in order to put investors at ease, but it only managed to deliver $149.6 million.

Measured per user, revenues were three times higher than in the same quarter past year but 14% lower compared to the previous three months.

Spiegel focused on highlighting the company's progress on Android development on the earnings call. As of March, the company said it had about 161 million daily users.

Snap has also reportedly tried to grow revenue by boosting advertising revenue per user, not by rapidly expanding its user base.

The slow user growth is not an insurmountable obstacle for Snapchat, but one thing is certain: any "inorganic" growth they exhibit will most likely be shadowed by Facebook, including acquiring other apps with key stand-out features.

The social network argued during its earnings call that numerous teenage users it has can't be reached by traditional television or print advertising, according to the Verge.


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