Investors have always known that Snap, Inc.'s (SNAP +0.50%) first big test as a public company would be its first financial report. Snapchat's parent company stepped up for that moment last week, and it's fair to say it flunked. Shares of Snap plummeted 17.46% on the week, after posting first-quarter results that fell short of expectations.
Snap is growing at a feverish pace. Revenue soared 286% to $149.7 million in the first quarter since its early March IPO. That's a hefty haul, but analysts were holding out for $158 million on the top line. Snap's loss was slightly more than the Wall Street pros were expecting even on an adjusted basis.
Revenue and average revenue per user dipped sequentially, things that were expected given the seasonality of the business. However, with the shares racing higher heading into the report -- Snap stock had closed higher for three consecutive weeks, climbing nearly 15% in that time -- it's easy to see why falling short of expectations wasn't going to do for a very finicky market.
Image source: Snap, Inc. https://www.snap.com/en-US/news/
Snap your figures
Snapchat's popularity continues to grow. There are now a record 166 million daily active users on the platform. However, growth is slowing. Daily active users are up just 36% over the past year and up 5% since the fourth quarter of last year. It doesn't help that Facebook's (FB 0.50%) Instagram is growing even faster than Snapchat. Instagram trailed Snapchat when the year began, but Facebook recently announced that the social photo-sharing app hit the milestone of 200 million daily active users last month.
This isn't the end for Snap. The shares took a beating on Thursday following Wednesday afternoon's disappointing results, yet they rebounded by 6% on Friday. A few analysts also approached the drop as a buying opportunity.
Jason Helfstein at Oppenheimer upgraded the stock from "perform" to "outperform," sticking to his $23 price target that became a bullish goal following the sell-off. Kip Paulson's $17 price target came with an "underweight" rating before last week's drop, but now he's boosting his rating to "neutral." Despite the challenge from Facebook and other dot-com giants, Snapchat's hold on millennials who are typically difficult for advertisers to reach makes it too important to ignore.
Brian Fitzgerald at Jefferies stuck to his "buy" rating and $30 price target, a much higher goal following last week's sell-off. Finally we have Ronald Josey at JMP Securities arguing that Snap stock should be bought on weakness, suggesting that Snap's improving monetization abilities may one day rival Facebook in terms of average revenue per user.
It obviously wasn't a love fest on Wall Street. Bearish analysts said "I told you so" as they wagged their fingers at investors. However, it's important to note that the stock never broke below its IPO price of $17. As bad as things got on Thursday before Friday's bounce, Snap is still not a broken IPO.
Snap didn't pass its first major test as a public company, but now it's rolling out new features to woo new users and keep existing regulars loyal. It needs to keep innovating, cramming for its next big test in three months.
