Snap missed revenue expectations in its latest results and predicted earnings for the first quarter of 2020 that fell below Wall Street estimates, sending shares in the messaging app sharply lower in after-hours trade.
The parent company of the app Snapchat said on Tuesday it had moved into the black, posting adjusted earnings before interest, taxes, depreciation and amortisation of $42m in its fourth-quarter results, from a loss of $50m in the same quarter in the previous year. The result was well above analyst consensus estimates of $25m.
However, this was overshadowed by the company forecasting adjusted losses of between $70m and $90m in the first quarter of 2020, compared with analyst predictions of $61m in losses.
Analysts had hoped Snap would signal greater enthusiasm from advertisers as it struggles to woo ad spending from Facebook and other platforms.
“Despite Snap’s efforts to make the platform easier to buy, Facebook’s reach and ease of use continue to make it hard for advertisers to justify Snap — and other — investment,” said Jim Cridlan, global head of innovation and partnerships at WPP’s Mindshare.
Snap’s ad products “while innovative, can also come with higher creative costs which makes for costlier investments”, he added.
Shares fell more than 15 per cent in after-hours trading to $16.08. This compares with the $17 at which it sold shares in its March 2017 initial public offering.
The debut profit in the fourth quarter, on an adjusted ebitda basis, marks a turnround for the Los Angeles-based group that suffered a string of blows in the past 18 months, from losing high-profile executives to product snafus and renewed concerns that users would ditch the app and move to Facebook-owned rival Instagram.
The company has focused on restructuring its teams, wooing advertisers with new ad formats, and boosting user numbers with newly popular augmented reality photo filters and original premium content from publishers. Daily active users increased 17 per cent — or by 31m — to 218m in 2019*.
Nevertheless, its average revenue per user — which stood at $2.58 — still trails far behind rivals such as Facebook and Twitter, and the fight for ad dollars is becoming more competitive with new entrants such as TikTok.
“The strength in our core business gives us confidence in our long term growth and profitability,” Evan Spiegel, chief executive, said, adding the group had seen “momentum across the board” in 2019.
Revenues rose 44 per cent in the three months to the end of December to $560.9m, just shy of analyst forecasts of $561.9m, as compiled by S&P Capital IQ.
Snap also revealed that it had booked a one-time legal charge of $100m to settle a securities class action lawsuit, meaning net losses stood at $240m. Shareholders had alleged that the company had failed to properly disclose the risks faced by Facebook-owned Instagram ahead of its initial public offering in 2017.
*The piece was amended to reflect the daily active users figures were for the full year.