Snap's Sales Fall Short as Users Shun Redesign; Shares Slide

(Bloomberg) -- Snap Inc. reported first-quarter sales that fell short of analysts' projections after rolling out a redesign of its main photo-sharing application, a move that turned off new users and held back advertising growth. Shares slumped as much as 19 percent in late trading.

Daily active users on the company's Snapchat mobile app, which lets people share pictures and videos that disappear, were 191 million in the period, missing the 194.3 million average analyst estimate, according to data compiled by Bloomberg. Revenue was $230.7 million, below predictions for $244.9 million.

Los Angeles-based Snap has had trouble sustaining momentum as a public company. Over the past several months, the company has altered the way its app works, separating conversations with friends from posts by media companies and public figures. That caused confusion and criticism from users and celebrities, and led some marketers to spend less on advertising, even as Snap shifted to an automated ad-sales system. The company said it will keep tweaking the design, leading to uncertainty in the months ahead. Snap also lost several top executives and cut 7 percent of its staff in a reorganization.

“Snap is going through a painful maturation phase,” said Daniel Ives, an analyst at GBH Insights. Wall Street was looking for “further red flags around the company's much-discussed app redesign,” he said.

Growth will continue to be held back by the redesign and new ad system in the second quarter, Snap Chief Strategy Officer Imran Khan said in prepared remarks to investors. Revenue gains in the current period will "decelerate substantially" from the first quarter, Snap said, when sales climbed 54 percent. That indicates growth will be far less than the 62 percent analysts expected on average.

“A change this big to existing behavior comes with some disruption,” Chief Executive Officer Evan Spiegel said of the app's new design. “We are already starting to see early signs of stabilization” among iPhone users, but the company still has a lot of work to do with refining the design and making it work for Android users.

Snap shares tumbled as low as $11.50 in extended trading. They had earlier declined 1.4 percent to $14.13 at the close in New York. The stock has fallen 3.3 percent so far this year, and is trading about 17 percent below its March 2017 IPO price of $17.

The company's net loss in the recent period narrowed to $385.8 million, or 30 cents a share, according to a statement on Tuesday.

Snap failed to add as many users as expected even as its larger social-media competitor, Facebook Inc., endured public controversies over data collection and its products. In the month of March -- which marked the start of the privacy crisis for Facebook -- Snap's daily average user count actually dropped below the average for the quarter, Spiegel said.

Today, Facebook announced plans to invest more deeply in the "stories" function that allows posting of videos and photos that disappear in 24 hours, which it copied from Snapchat. On WhatsApp, Facebook's global chat app, a similar feature is used 450 million times a day, the company said.

Snap has aimed to set itself up to brands and advertisers as an alternative to Alphabet Inc.'s Google and Facebook, which generate the majority of growth in digital marketing. Advertisers are hungry for another option, but some of them are still experimenting.

“Snap had its work cut out in terms of convincing marketers to engage more substantively with its platform,” Mark Mahaney, an analyst with RBC Capital Markets, said in a note to investors. His firm's survey found that 73 percent of marketers don't spend on Snap.

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz, Andrew Pollack

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