Snap may have had a successful IPO, but that was pretty much wiped out after it reported its first-quarter earnings — where it completely whiffed on what Wall Street was expecting.
The company said it brought in $149.6 million in revenue with a loss of $2.31 per share in the first quarter this year. Meanwhile, analysts expected the company to report a loss of 21 cents per share on revenue of around $158 million. In short, it doesn’t look good — and it looks like its user growth came in soft as well. The stock is down more than 15% in extended trading after it reported its first-quarter earnings.
Snap, for the most part, was seen as the first major successful IPO of 2017. That opened the floodgates for a swath of companies to wrap up their IPOs and raise as much money as they could. Normally these kinds of companies want around a 20% pop when they go public to ensure everyone gets paid and they are still able to raise a lot of capital. But Snap’s in particular was an important one because it would be a litmus test for Wall Street’s appetite for risk for fresh IPOs in 2017.
To be sure, the first earnings report for any company going public can be a rough one. For Snap in particular, Wall Street only has a little more than two years of data on the company’s newly-formed advertising business. That business is ballooning — growing 6x between 2015 and 2016 — but its costs are also mounting just as quickly. Wall Street is going to intensely scrutinize each new data point, whether that’s user growth, changes in costs or the amount of money it generates.
Uncertainty is never a good thing, especially in the face of massive advertising juggernauts like Facebook and Google. While those own practically the entire online advertising market, Snap has to go around and pitch investors that it is (or soon will be) a distinct option 3 alongside those two. It has to figure out how to be part of primary advertising budgets for brands with a diverse set of products and use cases, along with a highly-engaged user base, that can’t be copied.
Featured Image: Bryce Durbin