Snap Inc. co-founders Evan Spiegel and Bobby Murphy lost more than $1 billion each after the company reported earnings for the first-time Wednesday afternoon. Shares fell 25 percent to a low of $17.12 at 4:30 p.m. before rebounding slightly when the social media company reported first-quarter revenue that was below analyst estimates. Snap said its Snapchat app added fewer users than projected and the business is struggling to expand is audience as Facebook Inc. copies its most popular features.
The earnings results were a bumpy start for Snap after its much-hyped initial public offering, the biggest for a technology company in recent years. Snap’s earnings illustrate how difficult it is for smaller social media companies to compete in the age of Facebook, the social network run by Mark Zuckerberg, which has sucked up more than two billion people worldwide and has made the size of its network a primary selling point.
Since its IPO in early March, Snap has faced an uphill battle to convince Wall Street it can make money with advertising. Evan Spiegel said that automation will help the company make more money for advertisers. “People are going to copy your product if you build great stuff,” he said. “Just because Yahoo has a search box doesn’t make it Google.”
Snap’s $2.2 billion loss for the first quarter, which included a $2 billion expense related to stock compensation, was far above its $104 million loss a year ago. Revenue was $149.6 million, almost four times as much as a year ago, but fell short of Wall Street estimates of $158.6 million. And while Snap said its number of daily users increased to 166 million in the first quarter, up 36 percent from a year ago, that was down from 53 percent growth in the first quarter of 2016.
“We still have a lot of work to do, but I’m excited by the amount of progress we’ve made in such a short time,” Spiegel said. He added that people were highly engaged with Snapchat, with users creating on average more than three billion snaps, or pieces of short content, every day, up from 2.5 billion the quarter.
Snap is a company that probably will never make on its own and the only way out for them would be a takeover by someone in the social media space. Their business model is more that of a product not a company and will probably wiped out by someone like a Facebook