Snap has just released its earnings report and boy were investors disappointed? After a pretty successful Initial Public Offering, everyone had their eyes on Snap’s first earnings report from this year. However, those who were hoping for a miraculous burst of growth were disappointed as the company managed to miss expectations by a fair margin.
Snap generated $149.6 million in revenue in Q1, 2017. This translated into a $2.31 loss per share. The company justified its per share losses as due to compensation meted out using stock. Analysts on the other hand, were expecting the company to report a 16 cent loss on every share with a revenue of $158 million. So yeah, Snap did manage to wildly miss expectations on several counts.
Following these reports, Snap stock took a nosedive and fell by over 20 percent in extended trading. Keeping in mind that Snap shares had reached a price of $29 at their peak, current stock price is hovering around its opening IPO price of $17.
Total losses stood at $2.2 Billion. This is a huge increase from the $104 million the company lost in Q1, 2016 and in other times would have been frankly ridiculous. However, Snap justified its losses stating that it also included a $2 billion stock compensation expense that was incurred due to the company’s IPO. So yeah, there is no need to panic despite the almost 20 times increase in losses. However, losses still doubled and stood at over 200 million, even keeping the stock based compensation apart.
For a tech company, the first quarter is usually the toughest — granted. And that is why Snap’s earnings reports must be considered with a little bit of a leeway. We also need to consider the fact that the company has recently had its IPO and that could just serve to compound its difficulties as investors panic over every little thing.
Add to it the fact that Wall Street does not have much data on Snap available yet and its easy to see why the company is under so much scrutiny.
Meanwhile, Snap’s advertising business is growing as well. The company registered an impressive 6x growth between 2015 and 2016. However, its costs are increasing just as rapidly — leading to losses. The company not only needs to maintain growth while fending off competition from the likes of Instagram and Facebook, but it also needs to position itself as a viable option to the already established advertising behemoths like Google and Facebook.