Snapchat became a publicly traded company on March 2nd of this year. After several years of existing as a privately owned entity, investors were finally able to buy stock in the company in hopes of seeing it grow. Snapchat’s founders, who owned percentages of the company they worked hard to build, instantly became billions of dollars richer, and the unprofitable company gained billions more to help it grow.
Yet when Snapchat went public, they were also forced to abide by certain rules and regulations. They couldn’t ever fudge user or financial numbers again, as they allegedly have in the past (according to a lawsuit). Most importantly, they owed their investors a quarterly report on their earnings, growth, and other key figures dictating the company’s success or failure.
Today, Snapchat had their first earnings report in their short time as a public company. Unfortunately for the newly IPO’d Snap Inc., their earnings call did not go so well. Now, the company’s stock is down by over 25%, and investors are pissed. Here’s why.
Snapchat missed analysts’ expectations on their first earnings call.
Missing analyst predictions on a company’s first earnings call is often a bad sign. While companies miss predictions all the time (often causing their stock to dip), missing on the first earnings call could indicate many things. In this instance, it could mean that Snap went public too early before making a profit or losing less money.
It could also mean that the company will always have trouble making money, something that every public social network that isn’t Facebook struggles with. Making less than predicted is not a good look for a company like Snap, especially when Facebook is competing in the same space for the same advertisers.
How did Snapchat do during their first quarter?
Financial analysts and experts predicted the company would post revenues around $158 million and a loss of 21 cents per share. Instead, Snap Inc. posted $149.6 million in revenue and a loss of $2.31 per share. This is a major difference, between expectation versus reality, especially since the company isn’t anywhere near profitable.
It’s not all doom and gloom for Snapchat.
The company added 8 million users and has 166 million people using their app on a daily basis. This is 36% more users than were using app during the same time last year. Average ad revenue per user also increased by 181% compared to the same time last year. This means users viewing ads are significantly more valuable than before. The company’s cost to host Snapchat (where much of the company’s money goes) is also down a bit from the last quarter, though up compared to the same time last year.
Should you invest in Snapchat?
Snap Inc.’s stock is down 25% right now. This means you can get it for much less than the last month or so. Yet by posting less-than-stellar earnings during their first quarter as a company, there’s a chance the stock might continue to decrease. If you really believe in the company and want to invest, you might want to do your research and do so at a later date if it continues to decrease. If you think Snap’s stock is a dumpster fire waiting to happen, you probably should look elsewhere.