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Snap Tumbles Amidst Investor Anxiety

By Alex NewmanStock MarketsNov 13, 2017 04:14PM ET
www.investing.com/analysis/snap-tumbles-amidst-investor-anxiety-200264682
Snap Tumbles Amidst Investor Anxiety
By Alex Newman   |  Nov 13, 2017 04:14PM ET
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Snap has certainly seen better days; the tech company responsible for Snapchat saw share prices tumble throughout the week after a third quarter earnings report failed to live up to expectation. Share prices plunged by almost 15% on Tuesday, after user growth fell far short and financial losses continued to pile up. If Snap doesn’t right the shop soon, it could easily see more investors abandoning it as its prospects grow more dim.


Third times the try?
For Snap Inc (NYSE:SNAP), it’s recent third quarter earnings report spelled out trouble from the start. The company has been consistently hemorrhaging money, earning just $207.9 million in revenue, far below the expected $237 million investors were yearning for. Similarly, a loss of $0.14 per share, instead of the $0.15 expected, served to dampen investor’s confidence even more.


Prices hovered as low as $12.65 following the disastrous report, with an astonishing $443 million loss this quarter acting as a punch to investor’s guts alongside of the meager user growth it posted. With 178 million daily users, Snap’s enjoying only a sluggish 2.9% quarter-over-quarter growth rate, a figure which could lead to its demise if it’s incapable of turning things around to compete with the likes of Instagram.


Fancy new algorithms and savvy marketing techniques may not be enough to turn around Snap’s ailing fortunes, however. Investors are increasingly hungry for concrete, positive results that show them their dimes are being spent well, and Snap doesn’t appear to be in a great position to provide such. While Snap succeeded in growing revenue, such positives were easily outstripped by the negatives; losses this quarter were nearly four times the amount of third quarter losses in 2016.


Perhaps it’s the competition that’s doing Snap in; competitors like WhatsApp and Instagram in particular have been turning up the heat on the LA-based Snap, sucking away its users and adopting many of its successful changes while shunning the poorly-received ones. Snap has a plan, however; the company recently announced that it’s going to start paying top content creators, in a move it hopes will spur further engagement on the app.


Greater levels of native-produced content could indeed lure users back into Snap, and help alleviate some of its more pressing market concerns. Investors concerned for Snap’s future will doubtless be thankful for the move, desperate for anything that shows the ailing company isn’t quite dead yet. More will need to be done, however, particularly when it comes to stemming such terrible financial losses, if Snap hopes to endure well into the future.


Down, not out
Snap isn’t entirely without hope, of course. Indeed, some investors are still bullish on the company’s prospects, believing that its current woes are nothing more than a temporary stumbling block. If changes like those detailed above lure in more advertisers, for instance, Snap could quickly turn its current situation around and enjoy serious growth once again with sound business capital. The company has consistently struggled since Instagram launched its own stories function, however, meaning further innovation in how its platform will be used is needed before it can oust its competitors and reclaim its spot at the top.
Chinese investors could be the key to Snap’s salvation; an investment of some $2 billion dollars was recently announced by Tencent, the company behind China’s WeChat, bringing much needed capital to the company at its time of dismay. If such funds are used appropriately towards solving its current crises, Snap could very well turn things around in the next few years.


It’s a long, up-hill road facing Snap, however, and the company needs to be achieving more in the immediate short-term if it hopes to avoid investors abandoning it in droves. Snap’s focus on rebuilding its app for Android users could be the solution; Android users largely shun the app, which is clunky to use on their phones and ill-refined, meaning a new, better version of Snapchat made for them could seriously boost user growth and ad revenue.
The only thing that’s certain in today’s market is competition, which Snap has in droves. The company is down, not out, but needs a serious shakeup if it doesn’t intend for Instagram to be the final nail in its coffin. Only time will tell whether Snap’s recently-launched reforms will succeed, but investors will be watching early, ready to jump at the first signs of failure.

Snap Tumbles Amidst Investor Anxiety
 

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Snap Tumbles Amidst Investor Anxiety

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