Snapchat Q3- lose 2M more users

Snapchat’s 3rd Quarter earnings were recently announced. However, the company’s performance was seen to be lower than expected. A decline in the Daily Active Users (DAU) count was observed, which reduced by 1 percent from 188 million to 186 million. This is a deviation from the negative 1.5 percent growth rate that was observed in 2nd Quarter. In addition to this, the company’s share price in after hours trading dropped to $6.31.

Revenue and EPS loss:

$298 million was earned as revenue by Snapchat for Q3 along with an Earnings Per Share (EPS) loss of $0.12. These numbers were higher than Wall Street’s expectations of a revenue of $283 million with an EPS loss of $0.14. According to Wall Street’s expectations, Snapchat was to have a loss of half a million users. However, the user count is still up 5 percent year-over-year.

In comparison to Q2 when Snapchat lost $353 million, the company is improving its cost cutting since it lost only $325 million this quarter. Snapchat’s earnings were entered with a $6.99 share price. Which is almost equal to its $6.46 all-time low. This share price is very low compared to the company’s $24 IPO opening price. Wall Street was inspired by this and as a result, increased their share price. It was increased by 8.3 percent which was approximately $7.57. This was done immediately after the announcement of their earnings.

Snapchat’s after-hours trading share price has rapidly reduced to -9.3 percent to $6.31. In order for the shares to improve, the company required a modest growth in its business. There are possibilities of Snapchat losing more number of users in the forthcoming quarter. The investors are thus worried that the company might eventually diminish into nothing.

Users

Decline in the Average Revenue Per User (ARPU):

The present quarter has observed a 12.5 percent decrease in the Average Revenue Per User (ARPU) in the developing world. However, the global ARPU has increased by 14 percent due to strong progress in the US and Europe markets. In accordance with analyst estimates, Snapchat projects about $355 million to $380 million in holiday Q4 revenue.

Reason behind loss of 2 million users:

Evan Spiegel, the CEO of Snapchat explained the reason behind the company losing 2 million users. He elucidated that the 2 million user loss was majorly on Android devices. This was because Snapchat functions better on iOS as compared to Android devices. The CEO also mentioned that 13 to 34 year olds are among the major part of the US and Europe population which widely uses Snapchat.

Spiegel had said in a memo that his long term goal was break-even this year and full-year profitability in 2019. But CFO Tim Stone stated that “Looking forward to 2019, our internal stretch output goal will be an acceleration of revenue growth and full year free cash flow and profitability. Bear in mind that an internal stretch goal is not a forecast, and it’s not guidance.”

Modifications to be made to strengthen the usage of Snapchat:

Evan Spiegel said that gaining more users in the developing world by improvising the Android app would help restore their strength. Expanding beyond the age group of 13 to 34 year olds in the US and Europe would also contribute to the same. But most of the young users don’t want their parents, teachers or bosses to be using Snapchat. As a result, including older users may possibly affect the younger users’ approach.

For the first time, Snapchat has launched Snappable games in the 3rd quarter. The games allow the users to use facial expressions, touch and motion to play single and multiplayer games. 80 million individual users were seen to enjoy the Snappable Tic-Tac-Toe game. This suggested that introducing games on Snapchat could be the right direction for the company to move forward.


Must Read:

Snapchat requires new Android app to save itself


Snapchat has seen high competition with WhatsApp as well as Instagram. WhatsApp statuses and Instagram stories which are a clone of Snapchat stories have reached 450 million daily users and 400 million daily users respectively. These features of other social media apps have inhibited the growth of Snapchat abroad. Instagram has already made similar upgrades as the transitory messaging seen in Snapchat. If WhatsApp also makes similar upgrades to provide disappearing chats, Snapchat would be very susceptible in the developing world.

At this rate, Snap will run out of money before it’s projected to become profitable in 2020 or 2021. That means the company will likely need to sell new shares in exchange for outside investment or get acquired to survive. In the meantime, we will have to keep on watching Snap to see if it comes up with any other new ways to become profitable.

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