Snap shares plunge after company reports slowing user growth and revenues

People finding they have better things to do is bad news for Snap

Shares in Snap Inc, the owner of the popular Snapchat app, which floated on the Nasdaq stock exchange in March, plunged overnight after the company filed its first results as a public company revealing disappointing user and revenue growth.

While revenues surged and user numbers grew by 36 per cent compared to the same period a year earlier, it was less than expected. Losses also surged, but mostly as a result of $2bn or so of stock-based payments to executives. The company's share price dropped by 23 per cent in response.

Snap's 'unique selling point' when it emerged in 2011 was that it would enable users to send and share images, which could be set to be automatically deleted, theoretically preventing embarrassment.

It needs to grow fast in order to justify a market valuation of around $27bn, prior to yesterday's crash, after it debuted with a valuation of $20bn - a price many suggested was grossly over-valued.

"Snap presents investors with the opportunity to invest in the company behind an innovative, large-scale, and distinctively young-skewing platform," Brian Wieser, an analyst at Pivotal Research, told Bloomberg when it floated.

"Unfortunately, it is significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity," he added.

Snap's problem is that while it has a low three-figure million number of users, these are insufficient to be profitable and, while many analysts suggest that it needs to keep adding innovative features in order to attract and retain users, most still use it only for its most basic functions.

"To be fair, the maiden results were not that bad with revenues up nearly 290 per cent, year-on-year, at $149.6m. Users rose a more modest 36 per cent, year-on-year, to 166 million. But both metrics were lower than analyst expectations," commented Richard Holway, founder of analyst group TechMarketView.

He continued: "Incredibly, Snap lost $2.2bn - compared with ‘just' $105m in this quarter last year. Two billion dollars of these losses were stock-compensation related payments.

"The 'problem' with Snap is that its features are so easy to copy. Facebook's Instagram already has 200 million users of its Snap look-a-like Stories feature. And WhatsApp also seems capable of imitating new Snap features within 24 hours of their release. Whatever Snap Might say, most teenagers use Snap mainly as a texting substitute."

Snap is also embroiled in an embarrassing unfair dismissal case with a (brief) former member of staff who claims that the company sought to buff-up its usage figures prior to its initial public offering. Snap has denied the claims.

The company was also number three in Computing's December 2016 top-13 of companies that could disappear in the next dot-com crash.

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