Snap Inc. can't seem to catch a break. The company again disappoint Wall Street. Snap Inc. reported its Q3 earnings report yesterday, posting a revenue of about $208 million, which is roughly 12 percent less than the $237 million analysts were hoping for. Coming in far less than what analysts had projects, Snap also reported a net loss of $443 million on the quarter. Yikes.
Not only did Snap Inc. reported terrible financial information, Snapchat also reported disappointing user growth. Unsurprisingly, the company reported adding just 4.5 million new daily users, whereas analysts were expecting around eight million new users added. Snapchat now has a total of 178 million daily users.
After the release of this information, Snap stock took a hit going more than 18 percent in the early after-hours trading. This is the third straight quarter that Snap hasn't been able to attract growth or promise. The company also hasn't been able to deliver user base growth that many had hoped and were expecting after the company complete its high-profile IPO.
Many investors and insiders were expecting Snap to be a $1 billion business in 2017, but it doesn't look like the current path that Snap is on right now is going to get it there. For example, Googlewater Capital pegged Snap's revenue at $1.1 billion in February of this year. Interestingly enough, Snap has brought in about $539 million in the first nine months of the year.
Right now, it's unclear as to why Snap's business hasn't performed like it was expected to, per early expectations. Many are speculating that Span's transition to automated advertising sales, where advertisers can buy ads through software programs, is taking a lot longer to launch than previously expected. This could potentially be a one the reasons why Snap's earnings are dwindling.
In Tuesday's earnings call remarks, the company claims that it has five times as many advertisers buying ads through its automated auction, selling ad inventory to the highest bidder, than it did from beginning of 2017. Not only that, Snap claims that selling via the auction versus directly to an advertiser through human sales team has also “dramatically reduced pricing,” CEO Evan Spiegel wrote. “Our auction has a lower price-point than our reserved business because there is no fixed rate card,” Spiegel continued.
Here's what he's basically saying: Advertisers are able to get the same ads for cheaper when they buy through auction than if they bought them through Snap's sales team. It's quite the trick that advertisers use to maximize their dollars, and can't really blame them for it. This, however, is just temporary, as Spiegel puts it. “As we onboard more advertisers and multiple advertisers compete for the same ad impression, we should see higher pricing,” he wrote. To add, average revenue per user rose 39 percent to $1.17.
Before reporting the Q3 earnings, the company had already cautioned that it might be smaller than expected. It's not like no one was expecting it, but of course Wall Street isn't forgiving.