Earnings season has been a rough time to own Snap Inc.'s (SNAP +1.44%) stock in all but one quarter in its brief life as a public company, and last week was more the rule than the exception. Shares of Snapchat's parent company plummeted 23.7% last week, one of the market's biggest losers after posting disappointing financial results.
Revenue rose 54% to hit $230.7 million through the first three months of this year. Most companies would love to be checking in with that kind of growth, but analysts were holding out for a top-line gain of 63%. An unpopular platform redesign finds Snapchat bumping into some user retention and monetization problems, and the outlook for the current quarter calls for another period of sharply decelerating year-over-year revenue growth.
Image source: Snap, Inc.
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Snap is still growing despite the fallout of Snapchat's redesign that initially intended to make the site more appealing to older users that would be more valuable to advertisers. It closed out the quarter with a record average of 191 million daily active users, 4 million more than it had when the period began. Revenue did clock in with a 19% sequential decline, but this isn't fatal. There's some seasonality in this niche, as even the two market darlings of social media clocked in with sequential top-line slides of 8% and 9% during the same period. The widely criticized Snapchat app update obviously ate into engagement levels and its ability to monetize its traffic, but we can't dismiss the seasonality at play here.
Guidance is more problematic. Snap didn't provide an actual forecast, but it did warn that revenue growth for the current period will "decelerate substantially" from its already disappointing first-quarter levels. Snap is also bracing investors to prepare for a modest uptick in infrastructure costs as it tries to tweak its platform to win back early users without alienating newer members.
The unforgettable takeaway here is that Snap is a very volatile stock when it steps up for its quarterly updates. Its shares have now posted double-digit percentage moves in all five of the weeks in which the company has reported earnings, and more often than not, it's been a painful period to be long Snap stock. Let's size up the stock's action in each of its first five weeks as a public company.
- Q1 2017 -- Down 17%
- Q2 2017 -- Down 10%
- Q3 2017 -- Down 18%
- Q4 2017 -- Up 37%
- Q1 2018 -- Down 24%
Many analysts got fed up with Snap last week. At least three downgraded the stock, and several more joined them in slashing their price targets. The broken IPO is out of favor, hitting a new all-time low on Thursday. It's going to need to get its platform back on track before its shares follow suit.
