Snap Inc. Losing Users as it Moves Towards Profitability


This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Snap Inc. (NYSE:SNAP) has announced their earnings for Q3 ending September 30th, with their stock immediately taking a 10% hit in after-hours trading based on their results. Highlights from the earnings call and report are below:

Shrinking Losses

Snap recorded a net loss of $325M this quarter compared to $443M in Q3 2017 when adjusting for EBITDA they recorded a loss of only $138M compared to $178M in Q3 2017. The long-term stretch goal for 2018 was to become profitable however, this was abandoned long ago, internally the company still believes they can turn a profit just not in 2018. The quarterly losses of Snap are shrinking because advertising revenue is rising proportionately higher than expenses are. Snap has invested heavily in their advertising tools and believes that revenue will continue to climb based on these investments and will be less expensive to manage in subsequent quarters. They estimate a loss of between $75M-$100M (adjusted EBITDA) in Q4, which is feasible as the Balance sheet has some room for more losses if shareholders are willing to be patient.

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User Base Declining

The most important highlight to take away was the loss of 1 million Daily Active Users (DAU) and the expectation that they will lose more in Q4 as well. The importance dates back to their IPO in March of 2017 when there was barely a revenue model and a user interface that was changing frequently frustrating their users. The reason the stock was priced at $17 a share was only because of the number of users on the platform, with the expectation of figuring out the revenue and profit model later on.

Project Mushroom

Snap is aware that most of the DAU loss is on the Android platform, citing very good results from iOS users. They are taking two different approaches to fix this problem, the first being “Project Mushroom” an internal codename for a redesign of the Android application. We reported on the previous issues users were having with the design before, and how it cost the platform millions of users. The issue with Project Mushroom is there is no timeframe for release, or even what the redesign will entail which left shareholders to speculate. The second approach is lowering the bandwidth usage on their app for users, common complaints they have received are the amount of mobile data the app requires, so with a redesigned Android app, and lower usage they believe they can grow the number of global users.

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