Snap reports earnings, stock price plummets, redesign on the way
Snap’s road to profitability hits bump as Spectacle sales stall
Snapchat app and Spectacles maker Snap Inc. still hasn’t told a story Wall Street wants to hear, as the stock dropped 15 percent after the company reported disappointing third-quarter results (shown below).
Snap revenue was up 62 percent to $207 million in the third quarter but losses mounted faster: $443 million in the quarter, nearly 4X the cash it burned through during the same period in 2016. Another anchor on profitability: A $40 million write-down for unsold Spectacles.
Snap said daily active users are up 17 percent to 178 million.
[bctt tweet=”It also appears Snap management has finally listened to criticism that the app is too opaque and difficult to use for new users. ” username=”DeadPixelsSocty”]
It also appears Snap management has finally listened to criticism that the app is too opaque and difficult to use for new users. In the conference call, CEO Evan Spiegel stated: “The one thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use. There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
Snap Inc. Reports Third Quarter 2017 Results
Third Quarter 2017 Financial Highlights:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | Percent | September 30, | Percent | |||||||||||||||||||
| 2017 | 2016 | Change | 2017 | 2016 | Change | |||||||||||||||||
| (dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||
| (Unaudited) | (NM = Not Meaningful) | (NM = Not Meaningful) | ||||||||||||||||||||
| Revenue | $ | 207,937 | $ | 128,204 | 62 | % | $ | 539,256 | $ | 238,800 | 126 | % | ||||||||||
| Net loss(1) | $ | (443,159 | ) | $ | (124,228 | ) | NM | $ | (3,095,089 | ) | $ | (344,698 | ) | NM | ||||||||
| Adjusted EBITDA(2) | $ | (178,901 | ) | $ | (108,604 | ) | 65 | % | $ | (561,134 | ) | $ | (306,959 | ) | 83 | % | ||||||
| Other Financial Highlights | ||||||||||||||||||||||
| Cash, cash equivalents, and marketable securities | $ | 2,298,068 | ||||||||||||||||||||
| Cash used in operating activities | $ | (194,013 | ) | $ | (216,866 | ) | $ | (558,584 | ) | $ | (443,517 | ) | ||||||||||
| Free Cash Flow(3) | $ | (219,961 | ) | $ | (234,058 | ) | $ | (621,890 | ) | $ | (489,582 | ) | ||||||||||
| Capital expenditures | $ | (25,948 | ) | $ | (17,192 | ) | $ | (63,306 | ) | $ | (46,065 | ) | ||||||||||
| (1) | Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering. | |
| (2) | Adjusted EBITDA is defined as net income (loss), excluding interest income; interest expense; other income (expense) net; income tax benefit (expense); depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net income (loss) from time to time, as described below. | |
| (3) | Free Cash Flow is defined as net cash used in operating activities, reduced by purchases of property and equipment. | |
Note: For adjustments and additional information regarding the non-GAAP financial measures discussed, please see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below.
Operational Highlights
- Daily active users (DAU)(1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
- Average revenue per user (ARPU)(2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
- Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
- Capital expenditures – Capital expenditures were $25.9 million in Q3 2017, as compared to $17.2 million in Q3 2016 and $19.4 million in Q2 2017.
- Excess inventory and related charges – In Q3 2017, we recorded $39.9 million of charges related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.
| (1) | We define a Daily Active User, or DAU, as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period. We measure average Daily Active Users for a particular quarter by calculating the average Daily Active Users for that quarter. | |
| (2) | We define ARPU as quarterly revenue divided by the average Daily Active Users. | |
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