Published: Thu, May 18, 2017
Markets | By Erika Turner

Canaccord Genuity Begins Coverage on Snap Inc (SNAP)

Canaccord Genuity Begins Coverage on Snap Inc (SNAP)

For the first time, Snap reported quarterly earnings Wednesday, posting revenue and user growth figures that came in well below Wall Street expectations.

But according to the company's initial public offering (IPO) filing, the number of daily active users grew almost 48 percent in the final quarter of previous year and rose approximately 63 percent in the quarter before that. And although Snapchat had a 36 per cent jump in daily active users on a year over year basis, it added just eight million new users (five per cent), from last quarter.

On average, analysts were expecting first-quarter revenue of about $169 million, but Snap reported revenue of just $150 million. An estimated 8 million new Snapchat accounts were created in the last quarter, the slowest user-growth quarter yet. In after-hours trading, however, its shares dropped more than 25 percent, reaching a low of $17.18. The company however is no where close to achieving profitability. When adjusted for earnings before interest, tax, depreciation, and amortization (EBITDA), Snap lost $US188 ($255) million for the quarter.

A large reason for the underachievement is due to the number of users slowing down.

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Is Facebook stifling Snapchat's upside potential? Its nearest competitor Facebook-owned Instagram now has 700 million users, with its "Stories" feature having 200 million daily active users. Facebook as a whole dwarfs Snapchat eight times over with 1.8 million users.

Following a dismal first quarter earnings report for Snapchat parent Snap Inc. "It now faces incrementally fierce competition from deeper-pocketed rivals including Facebook", Instinet LLC analyst Anthony DiClemente said.

A survey of more than 3,000 people in the United States revealed consumer confidence in SnapChat was quite low, with 62 percent claiming they expect a SnapChat alternative to be released to which they will switch.

Snap's shares were $22.98 when the markets closed on Wednesday. For example, it added a slew of augmented reality features earlier this month, and announced Tuesday that it would allow users to replay messages indefinitely. Not to miss out on the trend, Facebook also launched disappearing stories this year. Then he took a dig: "Just because Yahoo has a search box doesn't mean they're Google".

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