Tim Stone is leaving Snap (NYSE:SNAP) just eight months after joining the company as CFO. Stone marks yet another in a string of executive departures at Snap, which includes Chief Strategy Officer Imran Khan, VP of Product Tom Conrad, and Stone's predecessor Drew Vollero.
While Snap said it expects to come in on the high end of Stone's fourth-quarter revenue outlook, the CFO's resignation speaks louder. Stone leaves about $20 million in unvested stock options on the table. He isn't disclosing any plans for what he'll do after leaving the company, but he doesn't think $20 million of Snap stock is worth sticking around four years for.
Revenue deceleration might continue
Snap gave an earnings outlook for the first time as a company after it released its third-quarter results. Stone said he expects the company to generate between $355 million and $380 million in sales for the fourth quarter, representing growth of 24% to 33% year over year.
Snap said its results were "slightly favorable to the top end" of that guidance, so investors should expect somewhere around 30% year-over-year revenue growth for the fourth quarter. That's a significant slowdown from third-quarter growth of 43%.
Analysts currently expect Snap to grow its top line by nearly 32% for the full year 2019. Snap's fourth-quarter results combined with Stone's resignation make that number seem very optimistic. It will be difficult for management to execute any strategy to turn revenue around if CEO Evan Spiegel is constantly dealing with a revolving door of executives and the CFO is checked out.
Continued user declines
Stone's outlook was based on the assumption that daily active users (DAUs) will continue to decline sequentially. In Snap's filing with the SEC announcing Stone's resignation and its updated guidance, it didn't make any mention of DAUs. That's a good indication there was nothing good to report.
Snap has been bleeding users since it botched its redesign early last year. DAUs peaked last February, and the company reported 191 million DAUs on average throughout the first quarter last year. The app had just 186 million daily users on average in the third quarter.
User growth has been stymied by the success of Facebook's (NASDAQ:FB) Stories products, which have more than 1 billion combined daily users. Facebook has the advantage of already having its apps installed on more than 2.5 billion people's phones. So many people don't have much incentive to install Snapchat.
Stone's job wasn't to turn around Snapchat's declining user base. It was to manage the financial operations in light of a declining user base. Snap made a couple major deals with cloud providers under the assumption it would continue to scale users, but those deals may have become untenable over the past year. Stone doesn't want to be the one in charge when those deals end unfavorably for Snap.
A declining user base requires Snap to get its finances in order to focus on profitability instead of revenue growth. That means increasing the value of each active user as well as cutting costs where it makes sense. Despite efforts to cut costs throughout 2018, third-quarter total costs and expenses declined just 7%. And Snap has those big cloud computing contracts that ramp up yearly hanging over its head.
Stone did an admirable job, adding a level of transparency to Snap's quarterly reporting. But it's hard to blame him for abandoning ship and seeking opportunities elsewhere.