Snap's (NYSE:SNAP) first earnings release left a bit to be desired, particularly in terms of user metrics. In this segment from Industry Focus: Tech, Motley Fool analyst Dylan Lewis and senior tech specialist Evan Niu, CFA, discuss what's going on with Snap's user base.

A full transcript follows the video.

This video was recorded on May 12, 2017.

Dylan Lewis: Evan, how's it going?

Evan Niu: Pretty good, I'm having way too much fun watching Snap tank today, I have to admit.

Lewis: You do have a little bit of options action with Snap, right?

Niu: Right, I am short, small a short position with some puts. So, I'm enjoying the action today.

Lewis: Even without having any skin in the game, so to speak, I will say this was the earnings report I was most looking forward to this quarter. We got a look at Snap's prospectus a couple months back, but you talked about, when a company goes public, the idea that very often, it's when it's in the company's best interest, or current management's best interest to go public. The numbers look maybe as good as they're going to for a while until they figure out monetization. I certainly thought that was the case with Snap. It seems like you probably did, too.

Niu: Yeah. Generally speaking, I consider IPOs a marketing event because you go on this road show, you're drumming up interest. And you have to have some numbers, of course, to back it up, but it's really about how you spin numbers and how you tell your story. And if you have a good road show, you have a good IPO, you raise a bunch of money. But now, we're at the first public earnings release, and I think that's really the wake-up call for any company that goes public recently, and it's the first big test. Now that we're public, because, obviously, earnings releases are a regular quarterly thing, and now you get to follow the company on an ongoing basis, it's not just this big marketing event like the IPO was.

Lewis: Yeah, the honeymoon period is certainly over for Snap. Following the release, shares were down 20%. And that's really because the numbers didn't look all that great. Revenue came in at just under $150 million, which was up from $39 million a year ago previous quarter, and the Street was looking for somewhere in the neighborhood of the high $150 [million]-$160 million range. Net loss came in at $2.2 billion, which was up from $100 million a year ago, a large chunk of that was from stock-based compensation. We're going to touch on that later. Shares fell 20%. I think one of the big scary things, also, looking at the report, was what was going on with user numbers.

Niu: Right. Of course, with any social media company, user metrics are extremely important. Everyone is all too familiar with how Twitter did not do well with putting up user numbers, and that's really why Twitter as a stock has lagged. They also haven't really been putting up strong ad revenue numbers, either. So, that's kind of where Snap now finds itself. We'd already seen in the prospectus that daily active user growth was decelerating, especially if you look at it on a sequential basis, which is what I like to do with social media companies. Yeah, they're up to 166 million. It's better this quarter than, probably, the past couple of quarters. But it was also shy of what people expected.

Lewis: Yeah, you can break out what's going on with users a couple different ways. You said sequentially or year over year. Quarter to quarter, the company did add more daily actives this quarter than they did the previous quarter, so, some cheers there. But if you look on the year-over-year growth rates, they're decelerating. You go back a couple quarters, and the company was posting growth rates of 65%, 62%, 48%, and now they're at 36% year over year. It seems like they're getting a little bit closer, a little bit closer, a little bit closer to the ceiling in terms of user growth, and what that overall audience might look like, and that's naturally what's going to scare investors quite a bit. They've talked a little bit in the past about how they're not huge on overall user numbers, they're really big on engagement, they like to highlight what was going on in terms of user spend with time on the platform. And they highlighted that people are spending 30 minutes per day on average on the platform last quarter. And they said the metric was up. I don't really remember them giving a firm number in the past when we were looking at the prospectus, Evan, do you?

Niu: I don't remember. They might have, but I can't recall off the top of my head.

Lewis: Yeah, I was looking back and I saw a range of 25-30 minutes when they released all their information for the IPO. So, it's hard to know exactly how high that's up. If management is saying that it's trending up, that's nice. But it's not like it was a massive improvement, based on, at least, what we know going back to the prospectus.

Dylan Lewis has no position in any stocks mentioned. Evan Niu, CFA has the following options: long January 2019 $20 puts on Snap Inc. The Motley Fool owns shares of and recommends TWTR. The Motley Fool has a disclosure policy.