Snapchat shares plummet as Snap Inc’s first results are out

Snapchat is quite popular, but its parent company Snap Inc has severely disappointed investors. Shares tumbled 23 percent since its debut on the stock market in March – and analysts blame it on Snap Inc's business model.

Photo by: Reuters
Photo by: Reuters

A woman in front of the Snap Inc logo on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc to post its IPO, in New York City, on March 2, 2017.

Snap Inc shares plunged on Wednesday after the owner of Snapchat reported slowing user growth and revenue in its first earnings report as a public company.

Missing Wall Street's estimates, Snap said its daily active users (DAUs) rose 36.1 percent to 166 million in the first quarter from a year earlier.

It marks a slowdown from the 47.7 percent rise for the fourth quarter and 62.8 percent jump for the third quarter that the company reported in its IPO filing.

TRTWorld’s Azhar Sukri has more.

A bad business model?

Snap's shares tumbled 23 percent in after-hours trading on Wednesday to wipe some $6 billion from its market value, a humbling reversal for the company after its red-hot March initial public offering, the biggest for a US tech company since Facebook Inc in 2012.

Revenue for the first three months of 2017 stood at nearly $150 million. This is three times what it was at the same time last year but with a sharp decline from the previous quarter.

It's not unusual for tech startups to post many years of losses as they build market share and recoup their initial investments.

Some analysts point to a weakness in Snap Inc's business model. It tries to make money by selling advertising space targeting its main user base, 18- to 34-year-olds, while Snap's main competitors, Facebook and Google, have a much broader range of users, and thus attract many advertisers.

Snap says it isn't planning Facebook's kind of global dominance but wants to target developed markets with fast mobile broadband.

TRTWorld and agencies