CALIFORNIA - Snap Inc. will be taking drastic measures to shape its future as the company still isn’t meeting much-lowered projections for growth.
Snap’s shares fell to a low of $11.78 in extended trading after closing at $15.12 in New York.
The company went public at $17 a share. Disappointing results since the IPO have caused optimism to reach an all time low.
Analysts six months ago thought Snap could generate more than $1 billion in revenue this year. Now, they expect $871.3 million.
Sales estimates for Snap have been declining since its March initial public offering.
Net Loss
In a statment, Snap said that the net loss in the third quarter widened to $443.2 million, or 36 cents a share. Excluding certain items, the loss was 14 cents a share, in line with an average analyst estimate of 15 cents. Snap said third-quarter revenue was $207.9 million, falling short of the $235.5 million analysts predicted.
Daily users averaged 178 million, less than the 180.5 million estimate of analysts surveyed by Bloomberg. Shares tumbled as much as 22 percent in extended trading.
According to data compiled by the Bloomberg Billionaires Index, The after-market stock decline wiped out about $1 billion from the combined net worth of co-founders Spiegel and Bobby Murphy. This leaves them both with a net worth of about $2.6 billion.
Snap said the price per ad fell 60 percent as part of a transition to an auction-based ad-selling system. Something the company said will be fixed over time as more advertisers bid.
However, the larger problem, Snap said, is that people complain they don’t know how to use the Snapchat mobile-messaging app. Once part of the app’s allure for teens, the company now considers its mystery a hurdle to future growth. So Snapchat is being redesigned.
“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application,” Chief Executive Officer Evan Spiegel said in his prepared remarks to investors.
“We’re willing to take that risk for what we believe are substantial long-term benefits to our business.” As a part of the overhaul, Snapchat is building an algorithm to show people a personalized version of the stories they might want to see.
Spiegel didn’t give many details, except to say that the intimate nature of Snapchat conversations between close friends would be preserved, even as it becomes easier for those users to see content from those who aren’t their friends.
The move would help Snap and its media partners make more money from ads on curated content. It will start by impletenting this as it will now start to share ad revenue with popular creators on its app, much like Instagram does with its influencers, Snap said in its prepared remarks.
The shares have dropped more than 10 percent since the IPO amid concern about slowing user growth and questions about the company’s advertising business.
Some marketers still consider Snap an experiment. The company’s self-service advertising system has made spending there easier, with 80 percent of ad impressions now delivered through the system, even if it caused prices to fall.
“The speed of this transition surpassed our expectations, but has dramatically reduced pricing as advertisers move from direct sales to our unreserved auction,” Spiegel said in his remarks.
Another business extention to Snap, Spectacles, hasn’t also done well. The hardware, sunglasses that could film people’s experiences, achieved a lot of buzz when first launched, so much so that Snap ordered too many.
Now, the company said it’s taking a $39.9 million writedown on all the inventory the company is unlikely to sell.