Snapchat continued to decline in the third quarter of 2018, but its business is constantly improving. Snapchat's daily count of active users declined again, this time by 1 percent to 186 million, below 188M and a negative growth rate of 1.5 percent in the second quarter. However, the number of users continues to increase by 5 percent year after year. Snapchat earned $ 298 million in revenue with an EPS loss of $ 0.12, exceeding Wall Street expectations of $ 283 million in revenue and EPS loss of $ 0.14, plus a loss of half a million users.
Snap entered the earnings with a share price of $ 6.99 near its historical low of $ 6.46 and well below its opening price of $ 24 IPO. Snap lost $ 325 million this quarter compared to $ 353 million in the second quarter, so it is making progress in reducing costs. That briefly emboldened Wall Street, which raised the share price by 8.3 percent to around $ 7.57 just after the gains were announced.
But then, Snap's share price dropped to -9.3 percent to $ 6.31 in post-closing operations. The stock was so limited by investors that it only needed a modest growth in its business for the shares to be encouraged, but the fear of Snap being reduced to nothing makes investors tired. The projections that Snap will lose users next quarter will scare investors even more.
Worryingly, Snapchat's average revenue per user decreased 12.5 percent in the developing world this quarter. But strong gains in the US and European markets increased the global ARPU by 14 percent. Snap projects $ 355 million to $ 380 million in fourth-quarter vacation revenue, in line with analysts' estimates.
In his prepared comments, CEO Evan Spiegel admitted that "While we have an incredible range among our 13-core population – For 34-year-olds in the US and Europe, there are thousands of millions of people around the world who do not yet use Snapchat. "He explained that the loss of 2 million users was mainly due to Android, where Snapchat does not work as well as on iOS, notoriously absent was an update on monthly active users. In the United States and Canada, Snap said that there were more than 100 million monthly users in the last quarter, probably in an effort to distract from the daily contraction of users.The company did not update that statistic, but said the statistics of "more than 100 million" was still accurate.
Spiegel had said in a note that his strenuous goal was the break-even point this year and profitability for the full year in 2019. But CFO Tim Stone said that "Waiting for 2019, our internal goal of stretched production will be to accelerate revenue growth and cash flow and profitability of all year. Keep in mind that an internal goal is not a forecast and is not a guide. "
During the call, Spiegel answered questions about the Android revision calendar and said:" Quality takes time. " ] We're going to wait until we do it right. " But analysts continued to wonder about how Snap would change things in 2019. He admitted that Snaps created per day had fallen from 3.5 billion to 3 billion per day, but they tried to reassure investors by saying that over 60% of our users still They are creating snaps. everyday.
Spiegel said to expand beyond the age group of 13 to 34 years in the US. UU and Europe, in addition to scoring more users in the developing world through the improved application of Android would be how the momentum restores. But the problem is that wooing older users could embitter the perception of their younger users who do not want their parents, teachers or bosses in the application.
Now, up to $ 1.4 billion in cash and securities, Snap will need to start reaching more of those international users or improve the monetization of those who still have to keep afloat without outside capital.
An Uphill Battle
The third quarter saw Snapchat launch its first internal augmented reality in Snappable games, while plans for a leaking third-party gaming platform. The Snappable Tic-Tac-Toe game saw 80 million unique users, suggesting that games could be the right direction for Snap to move towards
Launched Lens Explorer to draw more attention to the augmented reality experiences developed and created by the creator, plus his Storytelling Program to connect social network stars with brands to earn sponsorship money. It also turned off its Snapcash feature similar to Venmo. But the most important news came from its second quarter earnings report, where it announced that it had lost 3 million users. That marked it as a short stock price, but the competition and the user's contraction have taken Snap's shares to new lows.
Snapchat depends on the Project Mushroom engineering review of its Android application to accelerate performance, and thereby accelerate user growth and retention. Snap neglected the Android market in the developing world for years, as it focused on American teenagers with iPhone capabilities. Since Snapchat has to do with fast videos, slow loading times make it almost unusable, especially in markets with slower network connections and older phones.
Looking at the competitive landscape, the WhatsApp Snapchat Story cloning status has increased to 450 million daily users while Instagram Stories has reached 400 million daily; Much of that comes in the developing world, thus blocking Snap's growth abroad as I predicted when Insta Stories was launched. Snap Map has not become ubiquitous, Snap's original Shows are not yet premium enough to drag tons of new users, Discover is an overloaded mess of clickbits, and Instagram has already copied the best parts of its ephemeral messages. Snap could be vulnerable in the developing world if WhatsApp similarly copies chats that disappear.
At this rate, Snap will run out of money before it is projected to be profitable in 2020 or 2021. That means the company will likely need to sell new shares in exchange for external investments or be acquired to survive.