Snapchat's growth stalls in Facebook's shadow; stock plunges

Barsaba Taglieri
Mag 12, 2017

Facebook has been bent on copying Snapchat ever since the social media giant tried unsuccessfully in 2013 to buy what was then an ephemeral photo-messaging app.

Snap posted revenue of $149.65 million, up close to 300 percent over this time past year, and annual growth in the number of daily active users of 22 percent to 166 million users. When compared to the 158 million that Snap had by Q4 2016, however, the growth is only at a dismal 5 percent and that's what touched a nerve in investors.

Revenue jumped almost four-fold to $149.6 million but fell short of the average analyst forecast for revenue of $158 million, according to Thomson Reuters I/B/E/S. Now, it appears that Snap Inc. has kicked off its first quarterly earnings - since the IPO - in a bad way. About $2 billion of it was for IPO-related stock compensation costs. Indeed, the Stories feature on Instagram, which is owned by Facebook, has some 200 million daily users. It is Snapchat which has popularised animated AR selfie masks and facial filters.

Investors are anxious that Snapchat will continue to falter as Facebook (NASDAQ:FB) continues to target the app's audience.

With Snap's revenue declining sequentially and its user growth decelerating quickly, the company will have to prove to investors that it is going to be able to effectively compete in an environment in which Facebook is quickly launching its own Snapchat-like features across its social networks.

It has also aggressively updated its app.

"It's an easy way to grow daily actives quickly but we don't think those techniques are sustainable over the long term and it impacts our relationship with customers", he said. He noted that Snapchat users create 3 billion posts every day and the company is trying to avoid common user growth strategies like a lot of push notifications.

Despite the drop in shares, Snap is still growing faster than its chief rival Facebook, which has adopted Snapchat-like features including disappearing 24-hour "stories" on its main platform as well as its subsidiary, Instagram.

"You have to get comfortable with the fact that people are going to copy you if you make great stuff", he said.

It's not clear how much these competing products have hurt Snapchat. Not only with the slump in its growth rate for number of users but also for its revenue.

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