Snapchat fails to meet expectations despite user growth

Feb 6, 2020 | AR, Content marketing, Mobile, Online advertising, Social media, Viral and buyrals

Snapchat fails to meet expectations despite user growth
Snap stock fell more than 11% Tuesday evening after the company posted fourth-quarter results that failed to meet analyst expectations.

The company behind the popular social media app Snapchat reported revenue increased by 44% to $561 million on the quarter, falling short of forecasts of $563 million.

Net loss increased to $241 million, or 17 cents per share. Adjusted earnings of 3 cents a share beat forecasts for a penny.

The social media company’s shares skyrocketed by more than 144% in 2019 following strong revenue and traffic growth.

Today’s miss ends a yearlong streak during which the company bounced back from a stark decline when it went public three years ago.

The company grew its daily active users to 218 million, up from 210 million in the previous quarter.

“The strength in our core business gives us confidence in our long term growth and profitability and we’re excited to build on these results in 2020 and beyond,” Snap CEO Evan Spiegel said in a statement.

The company reported 218 million daily active users for the fourth quarter, up 17% year-over-year.

Snap provided revenue guidance for the first quarter of 2020, saying it expects to generate between $450 million and $470 million, ahead of analysts expectations of $462 million for the period.

“Our advertisers are generally retaining well and increasing their spend as we continue to demonstrate this meaningful ROI,” Snap Chief Business Officer Jeremi Gorman said on a call with analysts. “We have a lot of opportunity to get new advertisers primarily through education of the market.”

Asked if the company’s goal is to reach full-year profitability for 2020, Snap Chief Financial Officer Derek Andersen told analysts “This is obviously an objective that the entire leadership team is pushing towards.”

Industry comment

Yuval Ben-Itzhak, CEO of Socialbakers, said that rising innovation costs have let Snap down as it aims to fight against TikTok and Instagram – and wonders how much longer Snap can hold onto marketers’ budgets.

“Despite its growing user base, Snap’s Q4 results met with disappointment. Its investment in innovation is coming with a cost, and with the likes of Instagram and TikTok focusing on the same demographic, Snap faces the stiffest competition so far in the fight for ad spend,” Ben-Itzhak said.

“Over the last year Snap has invested in flashy ad formats like 3D paint on selfies and Bitmojis, but only time will tell if funky content formats will be enough to keep marketers from moving their ad budgets to Instagram or TikTok.”

Aaron Goldman, CMO, 4C Insights, said: “Brands that used our platform to buy Snap Ads doubled their spend year-over-year in Q4. This growth is a testament to the highly-engaged audience that Snap has amassed and creative ad formats available to brands. Looking ahead, we see more media budgets moving into closed ecosystems like Snap where opt-in consumers can be reached with precise targeting and native advertising.”

eMarketer principal analyst Debra Aho Williamson commented: “Snap slightly beat our expectations for revenue in the 2019 fiscal year, and the growth of its ad business shows that marketers want to engage with its youthful audience. Snap has also been a standard-bearer when it comes to new ad formats, such as augmented reality advertising, and those features are attractive to some advertisers. Regarding user growth, user gains were strong in 2019 outside of Snap’s core US and Europe regions, probably aided by the revamped Android app.”

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