Snapchat is working on an app redesign; Spectacles add $40 million losses to parent Snap

LOS ANGELES — Snapchat's parent could have used a fun filter — say some sparkly rainbows — to cheer up a gloomy quarterly report that was worsened by a $40 million charge for too many unsold sunglasses. 

Snap's shares sank 17% in after-hours trading Tuesday after the Los Angeles-based company reported sales of $207.9 million, up 62% from a year ago, but short of the $236 million in sales forecast by analysts polled by S&P Global Market Intelligence. 

Net losses widened to $443 million from $124 million. Hurting the bottom line: Spectacles, unveiled last year as a must-have accessory for the selfie-obsessed generation, weren't such a hit. Snap said it took a $40 million charge due "to excess inventory and purchase commitment cancellations."

User growth failed to live up to the torrid expectations Wall Street has for a company that's fairly young. Daily active users rose 17% from a year ago, to 178 million, or just 3% from the prior quarter. 

CEO Evan Spiegel admitted the company "grew our Daily Active Users at a lower rate than we would have liked.”

App redesign promise, warning

 

He also said he wanted to respond to complaints that Snapchat is confusing and hard to use by re-designing the Snapchat app. 

“The re-design will be disruptive to our business in the short term...but we’re willing to take that risk for what we believe are substantial longterm benefits to our business.” 

Facebook's Instagram app, which competes heavily with Snapchat, now has 500 million daily active users. Instagram has shamelessly copied many Snap features using a more straight-forward interface, most notably the Stories feature that lets users share a collection of photos and videos that expire within 24 hours. 

Snap has a lock on young viewers, age 13-34, some of whom have said they enjoy the app because its set-up doesn't exactly encourage older users (parents) to join.

"Our audience may not be the largest today, but we think it’s the most strategic," said Spiegel, in a conference call with analysts. "That’s a strong base to grow from and it will monetize in the long term."

On Monday evening a temporary hang-up with the app drove enough users to make #Snapchatdown a trending hashtag on Twitter, where users recounted their efforts to get the app to load. 

 

Spiegel blamed the quarter's slower growth on issues with the Snapchat app for Android handsets. 

A year ago, analysts saw Snap, Inc. as the next big thing in tech, possibly as huge as Facebook, thanks to the immense popularity with young folks for the Snapchat communication app. 

The company went public in March. Since then, the road turned quite rocky. The stock has fallen from an initial close of $24.48 to a low of $11.28 in August, but has been creeping back up. Tuesday the stock closed at $15.12.  

"Overall, this quarter was soft across basically every metric as it speaks to a business model which is in a state of major transition since going public," wrote Daniel Ives, an analyst with GBH Tech Research.

Snap makes its money from advertising and looked to expand to products as well. Its first product, the Spectacles video sunglasses, started as a highly sought consumer item when it was first introduced in trendy vending machines,.

"We were very excited by the initial reception," said Spiegel, but then he made the wrong decision to order too many parts to make more. "We weren’t able to sell as many spectacles as we had hoped to," he added. 

Follow USA TODAY's Jefferson Graham on Twitter, @jeffersongraham

© 2017 USATODAY.COM


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