Shares of Snap (NYSE:SNAP), 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.
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 (NASDAQ: FB) direct assault on Snapchat via the launch of a handful of Snapchat-like features across its social platforms.
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.