Snapchat User Growth Disappoints in Another Down Quarter

Snap went public in March in what was one of the tech industry’s most highly anticipated initial public offerings of the year. Then the messaging and media company promptly posted dismal financial results for two consecutive quarters, piercing the hype.

On Tuesday, Snap continued to disappoint with its latest financial snapshot. The company reported revenue for the third quarter that missed Wall Street expectations and also posted a larger-than-expected loss, as well as high costs. In the aftermath, its stock plunged about 20 percent in after-hours trading but recovered slightly.

The numbers add up to a big question mark for Snap. While the Venice, Calif.-based company has been regarded as innovative in social media, it faces a juggernaut in its chief rival, Facebook. Over the past year, Facebook has copied some of Snapchat’s most popular features in an effort to peel away its users. That has hurt the growth of Snap’s user base and advertising revenue, and its stock has performed disappointingly, trading below its offering price of $17 a share for months.

“User growth is slowing; revenue growth is failing to live up to expectations,” said Rich Greenfield, a managing director at the research firm BTIG.

If you watch the I.P.O. video that Snap put together, Mr. Greenfield said, “essentially nothing you heard today sounds like what you heard back then.”Continue reading the main story

In total, Snap’s third quarter revenue was $207.9 million, up 62 percent from a year ago but below Wall Street estimates of $235.5 million. Its net loss was $443.2 million — nearly four times the size of the loss a year ago and more than twice as large as what analysts had predicted. About half of that loss was because of the cost of stock-based compensation that the company pays its employees.

Snap added 5 million users to its Snapchat messaging service from the previous quarter, but that, too was below estimates from Wall Street, which expected 8 million new users.

Snap’s chief executive, Evan Spiegel, said revenue growth had been hurt by the company’s move to automate its ad-buying process. That transition caused ad pricing to drop by about 60 percent from the previous year, he said, though the change is now largely complete.

“I am grateful that this transition is nearly behind us,” Mr. Spiegel said on a call with analysts. “This has been a good test for our business.”

Mr. Spiegel also said that Snap was redesigning its app to make it easier to use and that the company would focus on user growth in 2018, as well as on content and augmented reality. In the past, Mr. Spiegel has said little about Snap’s product strategy. Unlike many other companies, Snap also does not give an estimate for future revenue in its earnings report.

Mr. Spiegel’s talk of goals for 2018 and notes of contrition were a welcome change. For the past two quarters, analysts have expressed frustration over Mr. Spiegel’s unwillingness to give guidance about the company’s product strategy. On stage at a recent conference, Mr. Spiegel said that he needed to do a better job communicating with investors.

Snap also indicated it was cutting back on Spectacles, its video recording sunglasses. The company said it had “misjudged strong early demand for Spectacles” and wrote off $39.9 million of the sunglasses in the quarter.

Brian Wieser, a senior research analyst at Pivotal Research Group, said there remained reasons for optimism about Snap and he questioned Wall Street’s focus on user growth.

“The last time I checked this isn’t a subscription business,” he said of Snapchat. “They’ve done really well retaining their users. They’re doing well at what they say they can do.”

Snap has also avoided the kind of criticism that other tech companies have faced over the use of their technology to spread false and misleading information. Last week, Facebook, Twitter and Google faced questions from Congress about how they were turned into a distribution platform for bogus news during the 2016 presidential campaign. Snap tightly controls the news and entertainment content that appears on its Discover news platform.