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What's going on?
Ouch! Snap Inc.s shares plummeted more than 20% on Thursday after it reported slowing user growth and revenue that fell short of Wall Streets expectations.
What does this mean?
Snap Inc., the parent company of popular messaging app Snapchat, debuted as a public company two months ago in the biggest US tech IPO since Facebook in 2012. Snaps shares popped almost 50% on its first day of trading, before sliding back somewhat in the weeks that followed. But this report knocked shares down much further. The key issue for investors appears to be that user growth is slowing, with daily active users growing 36% versus a year ago (down from the almost 50% growth experienced in the previous quarter).
Why should I care?
For markets: Snap is almost back down to its initial IPO price. (tweet this)
Snaps stock hasnt been this cheap since its shares were initially sold to the select investors that were able to buy-in at the IPO price of $17 per share. But there are reasons for that! Not only is user growth slowing, but average revenue per user declined versus the previous quarter which means its gaining users at a slower pace and making less from them. It seems that competition, especially from Facebook and its copycat Stories feature, is eating into Snapchats growth.
The bigger picture: The shift to digital advertising will continue.
As our eyeballs move from traditional media like television to our smartphones, spending by advertisers is following. Thats been great for Facebook and Google, which are the two giants of digital advertising, and should benefit smaller companies like Twitter and Snap as long as they can attract enough people to their platforms. Product innovation, which has been Snaps huge strength in the past, is a big driver of users attention whether Snap can continue to innovate successfully is a big question for investors.
Originally posted as part of the Finimize daily email.
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