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App redesign haunts Snap as investors flee

Stock Markets May 02, 2018 11:22AM ET
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© Reuters. FILE PHOTO: The Snapchat messaging application is seen on a phone screen

By Supantha Mukherjee

(Reuters) - Shares of Snap Inc (NYSE:SNAP) sank as much as 22 percent to the lowest since its 2017 flotation on Wednesday, after first quarter numbers showed it losing confidence among users and advertisers due to a widely-panned redesign of Snapchat.

The messaging app, known for its disappearing messages and ghost logo, started its first major redesign in November and followed up with several more updates this year.

But the company is facing ire from users who say the changes are unnecessary and make the platform harder to use. A petition on that urged the company to remove the update garnered more than 1.2 million signatures.

The results release knocked another $4 billion off the value of the company, now down a total of $23 billion from its high point a day after its stock market launch last March.

"It is not clear to us why the app redesign - the first product Snap ever tested at scale - was rolled out broadly, and we are even less clear on why it hasn't been more aggressively rolled back already," Deutsche Bank (DE:DBKGn) analyst Lloyd Walmsley said.

Company executives acknowledged that the new design hurt results but said they were sticking with the plan, aimed at broadening the app's popularity with users and advertisers.

"The redesign created a lot of new opportunities, and we look forward to continuing our efforts to refine and improve Snapchat," Snap's 27-year-old chief executive, Evan Spiegel, said on a conference call with analysts on Tuesday.

Some analysts drew a stark comparison with Facebook Inc (NASDAQ:FB), which has also redesigned its platform without much backlash.

Facebook, whose photo-sharing platform Instagram directly rivals Snapchat, last week reported a surprisingly strong 63 percent rise in profit and an increase in users, with no sign that business was hurt by a scandal over the mishandling of personal data.

At least 13 brokerages cut their price targets on the stock. MoffettNathanson was the most bearish with a price target of $7. The stock is currently trading at $11.66.

Snapchat's daily active users rose to 191 million in the quarter ended March 31, falling short of expectations of 194.15 million.

Snap has also moved toward a software-based auction system for selling ads that made it cheaper and easier to buy ads on Snapchat, but hurts revenue on the short term.

The company's revenue of $230.7 million also missed estimates of $244.5 million.

While Snap can turn things around with its core base of users, Snap is a "show me" story to advertisers and investors, and has to move fast to change the narrative, particularly given its cash burn levels, Walmsley said.

Snap said its cash burn fell 13 percent from the previous quarter to $222 million.

Shares of Snap, which went public at a $17 tag, were last down 18.7 percent at $11.49.

App redesign haunts Snap as investors flee

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