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Snap stock slides as COVID-19-led user growth proves ephemeral

Second quarter user numbers increased by 17% but underwhelmed expectations that were raised in the early weeks of the coronavirus (COVID-19) pandemic

Snap Inc - Snap stock slides as COVID user growth proves ephemeral
image source - Ink Drop / Shutterstock

Snap Inc (NYSE:SNAP), pioneer of ephemeral video, has shocked stock market investors as user growth seen in the early phase of the coronavirus (COVID-19) pandemic disappeared quicker than expected.

The Snapchat owner said its daily active users (DAUs) rose by 17% to 238mln in the second quarter which was uninspiringly in line with prior expectations, while Snap is now forecasting 242-244mln DAUs for the current quarter which falls on the underside of analyst expectations.

During the early weeks of the coronavirus lockdown, back in April, Snap reported that communications between friends on the platform had increased by 30% on average, but as much as 50% in some geographies.

At the same time, it said first-quarter active user numbers had increased by 20% and there was a 30-fold increase in daily downloads for Snap Camera app.

For the latest quarter, after the close on Tuesday Snap reported that revenue from ad sales rose by 17% to US$454mln, beating expectations of US$440mln. Average revenue per user was marked at US$1.91 which was broadly flat compared to last year.

The group's second-quarter net loss widened to US$326mln, or 23 cents per share, from US$255mln, or 19 cents in the same period last year.

“We are grateful that the resilience of our business has allowed us to remain focused on our future growth and opportunity,” Snap chief executive Evan Spiegel said in a statement.

Snap’s results set the tone for social media rivals Twitter (reporting its earnings on Thursday) and Facebook (next week).

In pre-market New York deals Snap stock was pointing down US$2.18 or 8.8% to US$24.74.

Beneath the headline of dampened user growth rates there were also investor concerns that the advertising business – the part of Snapchat that makes money - for the video-based social network is underperforming its rivals.

At US$1.91 the revenue per user metric languishes compared to the US$6.95 generated by Facebook, Hargreaves Lansdown analyst Nicholas Hyett highlighted in a note.

“A near threefold increase in revenues on the same cost base would do wonders for (Snap’s) profits,” Hyett said. “However, we worry about the group’s ability to deliver that kind of growth, especially in a sector where advertisers are spoiled for choice and the likes of Facebook, Twitter and TikTok are also after a slice of the pie.”

Quick facts: Snap Inc

Price: 44.5 USD

NYSE:SNAP
Market: NYSE
Market Cap: $66.3 billion
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