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Snap Q2 Earnings: Looking Like Myspace As DAUs Fall

Aug. 08, 2018 3:54 AM ETSnap Inc. (SNAP)51 Comments
General Expert profile picture
General Expert


  • DAUs grew 8% year over year but dropped by 3 million from Q1.
  • Declining DAUs can be attributed to the app redesign, but regaining momentum is difficult for a social media platform.
  • Poor revenue guidance reflects declining DAUs and the fact that the management will have to choose between monetization and user retention.
  • With revenue growth possibly slowing to the high 20s, I don't think the stock deserves to trade at 14x sales.
  • Members of our private investing community, Core Value Portfolio, get exclusive access to ideas like this one. Start your free trial today >>

Snap (NYSE:SNAP) beat on top and bottom line on Tuesday and investors reacted favorably initially. However, the numbers that I’m seeing are quite concerning.

As a stock priced for growth (negative earnings, 14x P/S), the company must continue to deliver on all fronts. Unfortunately for the bulls, the company posted its first ever quarterly decline in DAUs and Q3’s revenue guidance pointed to meaningful revenue growth deceleration.

Source: slashgear.com

DAUs Fall

Snap grew DAUs by 8% year over year from 173 million to 188 million, however, this represented a 2% sequential decline from 191 million in Q1.

As I mentioned in my Twitter (TWTR) article, DAUs are extremely important for social media companies as they represent heavy users who are highly engaged with the app, and are thus the main revenue generators. The fact that the company is losing steam in DAU growth at just 188 million is troubling. For comparison, Instagram Stories, which is just a single function of the overall app, achieved 400 million DAUs in June.

Snap’s sequential decline can be explained by the controversial app redesign that drew heavy criticism from users. While some may view this as a one-time occurrence, this won’t be the first time that major redesigns completely destroyed a social media platform.

Declining DAUs also implies that revenue growth will have to come from better monetization and that usually entails more user disruption (i.e. more ads), which may decrease engagement even further. In addition, user attrition snowballs very quickly. Just like how the network effect allows users to mushroom over a short period of time, the reverse is also true. Three million users stopped being DAUs because they are no longer (as) active on the platform, which will in turn cause their friends to be less active as well.

I’m sure some

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Comments (51)

What says the general now about SNAP?
Single digits any day.
PenBirdy profile picture
Am considering taking SNAP private at $50. Funding secured...
And you have no voting rights good grief.
This article is irrelevant as July marked the highest users ever on the app... where they have 15 million more MAUS then twitter, people didn’t leave. And maybe they temporarily lose with the middle age population to instagram, but don’t count on the older population to leave, hardware like spectacles can lead to users directly using app.

Example guy at work 72 bought spectacles, uploads snaps from grandkids to snap and follows them on snap, wouldn’t use otherwise. He likes the new news portion, so yes they are pivoting a little, but it’s necessary to be all inclusive and expand the base and monetization potential.

Unlike MySpace or any other platform what’s app isn’t penetrating its news media and magazine subscription which is its fastest growth area. Snap is becoming more like Netflix/Spotify than just a mix between Facebook and what’s app.

Facebook and Instagram also while trying to pivot to story ads has inadvertently helped snaps price per ad, as they charge 3x more, ROIs near the same, snap develops video news feed.

Differentiation is key, guidance in general helps analysts and Tim Stone obviously is the grown up with knowledge of being the #2 in finance to the cfo running the calls for amazon, he’s not an idiot.
Joe de Mencia profile picture
if spectacles were such a hit, they would've covered them on the call. 0 mentions, as far as I could tell. that should tell you something. another failure.
Karl Glazier profile picture
For the last 4 quarters, fantastic losses have remained in the same range despite user growth and rapid revenue growth. How will they get out of that deep hole with less users? This is the end. They will run out of money in a few quarters.
1.5 billion, they have plenty of cash to run the business for another year+ and if revenue per user hits 1.8 by year end then for 1.5 years + or more. You have to be joking...
Revenue per user hitting 1.8 won't matter if there are no users. The DAU's are down. That is a huge red flag for a company that is blowing cash to supposedly support growth.
Joe de Mencia profile picture
viktor, what is going to change in a year? they've already been public longer than that... they will tap the market for cash. the stock will go lower. into the single digits.
Short all the way to the bank.
Today 3 SA contributors have written the same articles, senseless waste of digital space and my time. Every business that I have ever run or owned, went in cycles of growth, stagnation, change and etc... Contributors should make contributions and not simply re-state an earnings report. Snap has multiple tailwinds coming this year, now another possible tailwind is coming with China. Gaming, music, new story channels, AR and etc..this is where contributors could shine with research and interesting articles. Instead I see 3 articles in one day that have 0 value. If you are a contributor than contribute!!@! Be at least minutely original..Enough nonsense Contributors do your homework if you wish to contribute and stop simply restating earnings releases, USELESS....!
General Expert profile picture
Hi yviktor8, I believe that there is no cycle for social media companies, if there is a sustained dip in users it's basically over.
you have to be kidding. Though I expected such a comment. When sites are re-designed and company is still and companies are in earlier stage development user growth stagnation can happen. Meet, Match, Pandora and list goes on. All user dependent businesses go through cycles. Like I said waste of my time reading such articles and comments.
The re-design was a desperate attempt to capture users because it was already falling. The new design was even worse, resulting in even more people leaving the app. Now, they are back to the original design and are presented with the original problem they began with - loss of users.
brett420 profile picture
Snap one true “social “ media company that doesn’t sell your data
brett420 profile picture
Camera company
AAPL made it as a music company, SNAP can easily diversify into other products as they are guiding towards.
They’re competing with Instagram, and right now Instagram is eating their lunch, without bleeding cash.
brett420 profile picture
Snapchat to 30$ by the end of the year easily .
Joe de Mencia profile picture
thirty cents?
brett420 profile picture
LMAO !!!’
i am from overseas, m,y GF is Italian, I live in France and London 50/50

i have kids workign for me who where snap fans

everybody uninstalled SNAP, 10/10 of all users that i constantly surveyed, family, coworkers

1. Instagram is way cooler
2. Too much advertising
3. Instragram has better networking, better scale, better content
4. It takes too much space in the phone, some millenials do not have the max memory phones
5. they grow out

1+2+3+4=+30, do not count on europeans for growth
brett420 profile picture
Also IG sells ur data . So enjoy that .
We count on the Mid East with all that state money being pumped into economy. The royals own an interest an have every incentive to grow SNAP to biggest social medium circulating. This is the real story. Saudi has made a reform to boost investment, and are now making investments again. The Prince said that SNAP is just at its infancy after puchasing.

What does this story say?

How big is the muslim population in the Mid East? Could you imagine SNAP dominating as a media outlet during Mecca pilgrimages.

This is the big picture.
cluebert profile picture
jerold you seem to be the lone bull here, posting multiple times to make your vote count more than once.
Would you rather own FB that trades at 10x sales and has tapped out growth or SNAP that trades at 14X sales? SNAP will get more market share overseas in long term than FB. Valuation is justified as its a $15 billion market cap vs. FB of $500 billion. Also, SNAP is just out of IPO so it does have a justified valuation at 14X sales. Remember AMZN back in the late 90s?
General Expert profile picture
Hi jeroldanderson, growth at this stage means taking shares away from other apps. Consumers time are no longer easily up for grabs. If they turn it around somehow in the coming quarters then I will change my opinion accordingly.

I fail to see why the company will dominate overseas. There are many apps vying for teen's attention. Short form video is exploding in Asia for example.
The question of the day.
Would you rather own FB vs Snap?
That is the most idiotic question.
You have no idea what you’re talking about when you say that FB growth has stalled. First of all they have:
1. Instagram which they started monetizing a year ago, which is eating Snap’s lunch. Also, they’re not bleeding cash.
2. WhatsApp - they are beginning to monetize.
3. FB Messenger- they are working on how to monetize.
4. FB Business - in which 30,000 business currently use for a fee.
And the list goes on.
Since the IPO FB is up over 350%, and the cash just keeps rolling in, and they’re looking to grow at a minimum 20% per year. Snap is still down and they are bleeding money. Only a fool would put money into a company that is bleeding money left and right.
Even though over the last few years I have advised people to steer clear of TWITTER and Snap, I would actually put into TWITTER before Snap.
Lol yes...compare AMZN to SNAP! Perfect comparison.
Shares are about to moon. Street has a very different opinion.

You compare SNAP to MYSPACE?

SNAP creates technology, MYSPACE was a hangout. 2 different companies.

Less people saw Star Wars spin off....does this mean DIS is going to experience a MYSPACE exodus?

Come on man. Your audience is smarter than this.
Buy snap hold snap
something something catching a falling knife... you have got to be so deep in the red by now. Sorry for that.
You clearly do not understand the company. It is expanding overseas which will fuel massive user growth. Revenue beat estimates. Net income beat estimates. Users spend on average 30 minutes a day. 10+ billion snaps taken per day. Advertisers prefer SNAP. SNAP has saturated the younger audience which each year grows and grows. FB has security issues which SNAP does not.

Revenue up, users down due to infrastructure changes.

Revenue increased while users decreased.

Spin that story!
General Expert profile picture
@jeroldanderson revenue is up this quarter but outlook is grim.
234 mil cash burn on the quarter...and no, this is not the first quarter neither the last written in RED.
Men lie, women lie but numbers don't lie...and numbers are saying the same story every quarter : SNAP is bleeding cash.
Meanwhile Mr. Spiegel paid himself 637mil last year and making 4mil party for X-mas.
Now convince me that this company is a great investment

Good luck !
There’s nothing to spin.
Yes, the Revs were up, but the DAU, were down. This should be a red flag to everyone. Snap just had their IPO, and now they have a problem with DAU.
Even if they are expanding overseas, if they can’t do well in North America first where the BIG bucks are, how do you expect them to do well overseas.
I don’t see the picture getting any better. I would recommend staying away from them.
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