User Trouble

Snap Inc. reported its first quarterly decline in daily users, sending its stock price gyrating Tuesday and adding to investor concern that big social-media sites are entering a slump after Facebook Inc. and Twitter Inc. also posted slowing growth.

For the parent of Snapchat, the 2% drop in daily users to about 188 million in the second quarter marked the first such slip since it was founded in 2011, and executives indicated that the near term could be bumpy as well. That guidance was offset by an announcement that prominent Saudi investor Prince al-Waleed bin Talal had taken a sizable stake in the company, creating conflicting signals that sent Snap shares on a roller-coaster ride in after-hours trading.

Snap executives said in its second-quarter earnings call Tuesday that the decline in user numbers was related to the company’s ill-fated redesign efforts but would not offer guidance for the second half of the year. Chief Financial Officer Tim Stone noted its third-quarter user growth has historically slowed compared with the second quarter.

The Los Angeles-based company expects third-quarter sales of $265 million to $290 million, which at the top end slightly beats Wall Street’s estimate of $289 million. When asked about the revenue forecast in the earnings call, Stone pointed to the company’s lower ad prices as a result of its change to its self-serving technology, among other factors. “These were not mixed results on the financial side,” said Forrester analyst Melissa Parrish.

“Every important number on the financial side appeared to be increasing. And that average revenue per user was increasing, which means it can support higher ad loads. The other reason average user revenue could be increasing is that they are commanding higher prices. It shows the programmatic efforts are paying off.”
The vast majority of the money Snap makes is from ad sales within its Snapchat app, a business that brought in the vast majority of the company’s $262.3 million in second-quarter sales, with its North American region adding $177.4 million to the top line and Europe accounting for $40.2 million. Analysts had expected sales of $249.5 million.


Todd “Bubba” Horwitz