Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Snap, Inc.'s Daily Active User Growth Fails to Impress

By Daniel Sparks - May 10, 2017 at 7:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is Snap already losing momentum as Facebook aggressively imitates Snapchat?

Shares of Snap ( SNAP -2.34% ), parent company of social network Snapchat, were slammed on Wednesday, following the company's first-quarter earnings release. Shares are down nearly 25% in after-hours trading at the time of this writing.

Snap's revenue and daily active users during the quarter increased strongly on a year-over-year basis, but both metrics fell short of expectations. Slower-than-expected revenue growth and a meaningful deceleration in the company's daily active user growth have some investors worried.

"Snap Inc." on a yellow background.

Image source: Snap.

Here's a look at Snapchat's most disappointing metrics from the quarter.

Why Snap's growth wasn't enough

At first glance, Snap's 286% rise in first-quarter revenue and its 36% year-over-year increase in daily active users may seem impressive, but analysts had higher expectations.

On average, analysts were expecting first-quarter revenue of about $169 million, but Snap reported revenue of just $150 million. Interestingly, this figure is actually down sequentially from Snap's fourth-quarter revenue of $166 million. This lower revenue on a sequential basis was driven by a 14% sequential decrease in average revenue per user (ARPU). ARPU was $0.90, up from $0.32 in the year-ago quarter, but down from $1.05 in the fourth quarter of 2016.

Further, several estimates for Snap's users were looking for a count of about 169 million to 173 million daily active users, according to Reuters. Snapchat's actual daily active users for the quarter were 166 million. While the figure is up 36% year over year, it's only up 5% sequentially.

Snap's 36% daily active user growth was particularly disappointing when put into context with how fast the key metric is decelerating. Daily active users increased about 48% in Q4 and 63% in Q3.

Is Facebook stifling Snapchat's upside potential?

Snap's underwhelming quarterly results were almost certainly partly due to Facebook's ( FB -1.14% ) direct assault on Snapchat via the launch of a handful of Snapchat-like features across its social platforms.

Instagram Stories on a mobile phone.

Instagram Stories. Image source: Instagram.

In March, Facebook finished rolling out Snapchat's core stories format to every one of its major social networks. Enabling users to curate their photos and videos into a daily story, Facebook quickly found that the stories format was a major hit on Instagram when it unashamedly copied Snapchat last year. The format has now garnered over 200 million daily active users on Instagram, Facebook said in its most recent earnings call. Facebook followed this feature launch on Instagram by bringing the same format to WhatsApp, Messenger, and Facebook itself.

Snap's quarterly decline in revenue confirms the results of a recent study by RBC Capital Markets in partnership with Ad Age, which suggested that Snapchat is failing to impress marketers. The study also found that marketers were more interested in spending ad dollars on Facebook's own photo- and video-sharing app, Instagram, than on Snapchat.

With Snap's revenue declining sequentially and its user growth decelerating quickly, the company will have to prove to investors that it is going to be able to effectively compete in an environment in which Facebook is quickly launching its own Snapchat-like features across its social networks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$306.84 (-1.14%) $-3.55
Snap Inc. Stock Quote
Snap Inc.
$46.79 (-2.34%) $-1.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.