Snap Inc IPO day at New York Stock Exchange in March. Image: NYCStock/Shutterstock
Snap Inc’s first quarter as a public company hardly crackled and, let’s face it, didn’t exactly pop. But ultimately, Snap needs to keep its fizzle.
Shares in Snap Inc, owners of the ephemeral messaging app Snapchat, plummeted overnight after the company posted disappointing earnings – including a whopping $2.2bn loss – in its first quarter as a public company.
Expectations for Snap’s first public outing were very high, compounding the company’s stock performance.
Snap’s stock fell to $17.66, just above the company’s IPO price of $17 when it raised $3.4bn on its first day of trading with a $24bn valuation.
However, investors may take some solace in the fact that shares in Facebook and Twitter also slid after their first public earnings reports following IPO.
1. Revenues reached 286pc but investors are a little deflated
Snap reported first-quarter revenues of $149.6m, which fell short of analyst expectations of $158m.
However, this is a sizeable 286pc leap on last year’s Q1 revenues of $38.7m.
2. Snap lost a lot of money in Q1
Despite the jump in revenues, the alarming thing to note is the scale of losses that Snap is accruing. The company’s losses grew from $104,576 last year to $2.2bn in the first quarter of 2017.
3. Snap has 166m daily users
The most interesting thing about Snap is its number of users. The company reported that daily active users grew from 122m in the first quarter of 2016 to 166m in Q1 2017, which is a 36pc increase on last year. Snap also said that daily active users increased 5pc from 158m in Q4 2016.
4. ARPU is a moving target
Snap revealed that average revenue per user (ARPU) rocketed 181pc to 90 cents per user in 2017, compared with 32 cents last year. However, ARPU was down 14pc compared with Q4 2016 when it stood at $1.05, which indicates that it is a bit shaky.
Addressing this in an earnings call last night, Snap CEO Evan Spiegel said that growth will come from “reducing friction” by making it easier for people to share more content, more often.
5. Snap is spending a lot of money
Capital spend on keeping the lights on at Snap grew from $12.5m last year to $20.4m in Q1 this year.
6. Wearables work and Spectacles are a nice little earner for Snap
In the earnings call, CFO Drew Vollero said that the sale of Spectacles – Snap’s eyewear with built-in cameras – accounted for the majority of the company’s $8.3m worth of ‘other’ revenue in Q1.
During the quarter, Snap made Spectacles widely available for the first time online. Each pair costs $130, which suggests that the social network sold more than 60,000 pairs of Spectacles.
7. Facebook and Instagram’s copycat strategy is hurting Snap
One of the real implications to draw from Snap’s first public quarter is that it still has some distance to go to really crack Facebook and Instagram’s hold on the social media landscape, and that Mark Zuckerberg has pretty strong defensive tactics, which mainly involve copying innovation from Snapchat.
In recent months, Facebook launched some of its own ephemeral features and in August, Instagram Stories was revealed, where photos and videos disappear after 24 hours. However, Snapchat is still a viable threat to the Zuckerberg empire with its 166m daily users, and growing. For perspective, about 1.2bn people log into Facebook every day and 400m do likewise on Instagram.
8. Snap is hiring a lot of people
Vollero said that 90pc of Snap’s new hires are in engineering and sales, and that it employs more than 2,000 staff. Not bad for a company that was set up in a dorm in Stanford in 2011.
9. Events, current affairs and content are where the money is
Snap said it got a revenue boost in 2016 from events such as the Olympics, college football matches and the US presidential election. Spiegel also signalled that Snapchat Shows – short videos made for mobile phones – are set to grow throughout the year from the present one per day.
10. Programmatic is the future
Snap plans to invest more in programmatic advertising, enabling advertisers to book and pay for ads through an automated system rather than purely human interfaces, which is precisely the way Facebook and Google make shedloads of cash.
11. It is all about momentum
The ultimate lesson from Snap’s first public quarter is that it faces the challenge of retaining momentum and not going down the same road as Twitter, which lost some of its sparkle once it became a public company.
Snap presents a real challenge for Facebook and Instagram, and the frontline strategy of this skirmish is clearly about innovation.
For Snap to win, it needs to keep this innovative edge. Imitation is, after all, the sincerest form of flattery.
Snap Inc IPO day at New York Stock Exchange in March. Image: NYCStock/Shutterstock
