Snapchat loses users even as it grows revenues

Snap's Snapchat app unexpectedly lost users in the second quarter, the company said on Tuesday, likely adding fuel to investor fears about slowing growth in the social media sector.

Daily users fell to 188 million from 191 million in the prior quarter, which could heighten investor anxiety about how competition and privacy issues are affecting Snap and its peers.

The company beat analyst revenue forecasts as it drew in more international and small business advertisers but posted a wider-than-expected quarterly loss.

Snap had never before logged a quarterly drop in users, according to data it has released going back to 2014. Analysts on average had expected Snap to gain nearly two million users in the second quarter from the first quarter.

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Snap's user growth has pulled back sharply over the past two years. Much larger rival Facebook has replicated Snapchat features such as virtual animal ear filters for selfies and the "stories" format for sharing content.

A Snapchat redesign in February aimed at encouraging users to watch more videos prompted user protests after they found it more difficult to find the content they wanted. Snap in first-quarter results said it would again adjust how it presents content.

Earnings from Facebook and Twitter in recent weeks spooked social media investors by showing issues around data privacy, abusive content and phony accounts were weighing on user growth and sending expenses higher. Both companies shed some 19 per cent in market value after reporting, and the results also weighed on Snap shares.

Snap lost about one million users in each of its three geographic reporting regions: North America, Europe and rest of world.

Its revenue was $262 million in the second quarter, beating the average estimate of $250.43 million, as average revenue per user surged to $1.40 from $1.05 a year ago.

The company has been working to convince big advertisers to spend more of their budgets on Snapchat ads and reach the app’s base of mainly 18-34-year-old users, but companies have largely considered the spending experimental.

Snap, which has never had a profitable quarter, went public in March 2017 with a $17 share price. The stock jumped immediately following the IPO but has lost some 50 percent since.

Still, the social media company’s valuation signals investors see potential for outsized growth, with Snap entering trading on Tuesday at nearly 10 times expected revenue, compared to 7.6 times expected revenue for Facebook shares and seven times for Twitter.

Snap has tried to focus on developed markets with strong revenue potential, in contrast to Facebook’s strategy of tailoring its apps for emerging markets that are contributing much of its new users.

Snap lost $353 million in the quarter, or 27 cent per share, more than the loss of $210.61 million, or 17 cent per share, analysts had projected. – Reuters