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Snap's First Earnings Report Spells Trouble

Written By Alexandra Perry

Posted May 11, 2017

Snap is learning the first brutal lesson of the market: A bad earnings report can send a company into a nosedive.

Snap’s stock plummeted after its first earnings report. In fact, the company lost nearly a quarter of its value in a few hours. 

To most investors, this shouldn’t come as a surprise. Snap’s fate was sealed the second its cocky co-founders launched an unrealistically optimistic IPO.  

Snap has been struggling ever since the initial buying surge ended.

So let’s take a look at that brutal first earnings report.

Snap brought in $149.6 million in revenue, falling short of market estimates by almost $10 million. It lost $2.31 a share.

Now, we do have to cut the company some slack. For most of the first quarter, they were bleeding money. They still had to grapple with the costs of IPO.

These numbers aren’t earth-shattering. But they aren’t good.

And they draw attention to many of the company’s shortcomings. Shortcomings that undermined investor confidence post-IPO, including competition and a slow growth rate. 

The competition worry proved true. Over the last month, Facebook has been aggressively hedging into Snap’s territory. It launched multiple features that mirror Snap’s features.

And, even though research suggest Snap’s users remained loyal, the company struggled this quarter with new customer acquisition.

You can’t blame Facebook 100% for that.

Snap already has captured a majority of its millennial market. Which brings attention to another investor concern.

Many analysts predicted that Snap’s user growth would be too slow to keep up with costs of operation — specifically the costs of Google Cloud, a hosting service that has Snap in a financial headlock. 

Snap can go home and lick its wounds. Hopefully, after heavy spending on the path to IPO, the company can anticipate a better second-quarter earnings report.

But things aren’t looking good for the young social media company.