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Why Snap Stock Dropped 13% in August

By Evan Niu, CFA - Sep 4, 2018 at 3:47PM

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Second-quarter results that showed its first decline in users knocked Snap stock down a notch.

What happened

Shares of Snapchat parent Snap ( SNAP -0.73% ) dropped 13% in August, mostly due to the company's second-quarter earnings results. Snap reported its first decline in daily active users (DAUs), which rattled investors.

So what

Snapchat's sequential user growth had been decelerating for quite some time, so it wasn't entirely unsurprising that the ephemeral photo messaging platform lost 3 million DAUs in the second quarter, or about 2%. That also included losing 1 million DAUs in North America, its most important market, which represented nearly 70% of revenue in the quarter. CEO Evan Spiegel blamed the trend on "disruption caused by our redesign." Snap had rolled out a controversial redesign earlier in the year that had sparked widespread backlash among its most loyal users.

Snapchat logo

Image source: Snap.

Snap ended up posting a net loss of $353.3 million, or $0.27 per share, even as revenue jumped 44% to $262.3 million.

Now what

One silver lining was that Snap started issuing financial guidance for the first time, which may be thanks to hiring new CFO Tim Stone. The company expects third-quarter revenue to be in the range of $265 million to $290 million, which should translate into adjusted EBITDA of negative $185 million to negative $160 million. That top-line forecast would represent growth of 27% to 39%, which means revenue growth is also decelerating at a time when the user base may be peaking.

Shares of Snap have tapped a new all-time low in trading today.

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.

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