It's not easy being a Snap Inc. (NYSE:SNAP) investor these days. Shares of Snapchat's parent company initially moved higher after Tuesday's market close, fueled by a second quarter in which revenue and earnings landed ahead of analysts targets.

It was a different story when the market actually opened for trading on Wednesday, as the shares were trading as much as 8% lower in the morning. Snap may have exceeded Wall Street expectations, but usage trends remain sluggish. Snapchat's doing a good job of milking more revenue out of its users, but that's a hollow victory if the audience itself is shrinking. 

A phone with a Snapchat photo.

Image source: Snap, Inc.

Snap crackles and pops

Investors know that holding Snap going into an earnings report is a dicey proposition. The stock has taken a double-digit percentage hit in four of its first five quarters. It was struggling with monetization back when its usage base was humming along, and now things are the other way around, with the social platform's popularity coming into question. 

Revenue rose 44% to $262.3 million for Snap's second quarter. Snap's adjusted deficit narrowed to $0.14 a share. Analysts were settling for a net loss of $0.17 a share on $251.2 million in revenue. Snap came through with a beat on both ends of the income statement, but a closer look at the metrics and Snap's guidance calling for decelerating growth are proving to be problematic for the market that mistakenly bid up the stock initially following Tuesday's post-close report. 

Snap's top-line growth is the combination of an 8% increase in daily active users -- up to 188 million -- and a 34% surge in average revenue per user. This may not seem particularly worrisome, but things get hairier when you shift your lens from a year-over-year perspective to focus on Snap's sequential progress. Average revenue per user is growing quarter over quarter, but Snap had 191 million daily active users in the first quarter of this year. 

Milking more out of its users is great, and Snapchat is doing that through new features and products. However, it's easy to see why investors are getting antsy about the popularity potentially peaking, and Snap's guidance isn't very comforting. Snap is eyeing another quarterly deficit with revenue growth slowing to between 27% and 39%. Deceleration isn't fatal, but if Snap lands at the low end of its $265 million to $290 million revenue range, we'd be looking at flattish sequential revenue growth. Analysts were perched at $290.1 million, but now they are likely to hose down their projections. 

The uninspiring guidance suggests that we haven't seen the last of the sequentially shrinking user base. Morgan Stanley analyst Brian Nowak now sees daily active users shrinking to 183 million in the third quarter. 

Snap continues to pay the price for the poorly received Snapchat redesign it rolled out late last year, and it will be hard to applaud monetization gains if more users keep leaving than those rolling in. Audience breadth is everything when it comes to a social platform, especially as influential users migrate to other offerings. Once you start losing your dominance, it's hard to get it back. 

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.