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Snapchat is losing twice as much money as it did last year

Snapchat is losing twice as much money as it did last year

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The moment of truth

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Photo by Amelia Holowaty Krales / The Verge

Snap reported its earnings for the first time since becoming a public company in March of this year. Its daily active user count clicked up to 166 million, a 5 percent increase over last quarter, up 36 percent from this time a year ago. That puts it behind Instagram Stories, a competitor launched by Facebook that copied heavily from Snapchat and has already passed 200 million users. It also means Snap hasn’t found a way back to the rapid growth it saw in years past.

Snapchat has a user growth problem on its hands

Investors were not pleased with the slowing rate of growth, and the company’s shares were down nearly 25 percent in after-hours trading. Financially the company continued to increase its revenue, which grew nearly 300 percent to just under $150 million in the first quarter. Of that around $8 million came from sales of Spectacles, its one hardware product. But it’s still a long way from achieving a profit, and even then that revenue figure came in under Wall Street expectations of $158 million.

The company’s losses ballooned to over $2.2 billion, but most of those were one time expenses related to stock bonuses paid out after a successful IPO. CEO Evan Spiegel got a sweet $750 million on his own. But even if you ignore that massive hit, Snap’s losses basically doubled. It burned through $104 million in cash in the first quarter of 2016, and lost $208 million during the first three months of 2017. This was despite the fact that the average revenue per user generated by Snap was 90 cents, up 14 percent from last quarter and up 181 percent from the same period last year.

Investors should have seen this coming. The company’s financial disclosures before its IPO revealed large and growing losses. Snap warned investors that it was unsure when, if ever, it would reach profitability. And while its user base was highly engaged, its user growth slowed to its lowest level ever in the fourth quarter of last year.

All the red flags that were present then continued to appear today, putting the company in the tough position. It will have to convince investors it can find ways to boost user growth or secure a path to profitability or its stock price will suffer the same fate as Twitter. That in turn can quickly make it difficult to attract and retain top talent.

Snap’s big argument on its earnings call today was that the users it has, many of whom are teenagers, can’t be reached by traditional television or print advertising. Notably absent from this pitch, however, was a comparison of advertising on Snapchat versus other social media. Snap said users spend an average of 30 minutes a day in the app, and that the number of ads being shown today is likely to increase, giving it headroom to boost revenue per user and move closer to profitability. It is also moving towards hosting original programming, showing short clips to users who are moving away from traditional television.

Asked if he was worried about competition from Facebook on the call, Spiegel let out an audible laugh. “Just because Yahoo has a search box doesn’t mean they’re Google,” he quipped.