Snap Inc share price flops after earnings disappoint Wall Street: Here's what the analysts say

Lynsey Barber
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Facebook's success with Snapchat-like features has analysts worried (Source: Wikimedia Commons)

Shares in parent company Snap opened more than 20 per cent lower as the bell rang in New York, after the tech company's first earnings as a public company disappointed Wall Street.

The number of people using Snapchat grew to 166m and revenue grew 286 per cent in its first quarter, but they missed analyst forecasts and sent stock sliding close to its IPO price of $17 in pre-market trading, although when markets opened shares were trading around $18.

Read more: Snapchat owner Snap undershoots forecasts on revenue and user growth

"The figures, showing revenue of $149m but a remarkable loss of $2.2bn, will allow the doubters to proclaim ‘We told you so!’ from the rooftops," said IG chief market analyst Chris Beauchamp.

Higher losses were expected after Snap's IPO in March triggered share payouts.

"Still, if the story Snap is selling is user growth, then at least here [it is] delivering – users have risen 36 per cent year-on-year and five per cent from the last quarter," he added.

Others were not so sure.

"We believe investors had expected to see a daily active user (DAU) number of at least 170m for the quarter and so Snapchat’s total DAU remains subscale at this time in our view," said Northern Trust's Neil Campling.

Analysts at RBC Capital Markets noted Twitter shares dived a similar percentage after its maiden results and is bullish on its future.

We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability. We see the company’s current limited daily active user base (166MM or around 1/8th the size of Facebook) and its current low average revenue per user [ARPU] ($0.90 or around 1/7th that of Facebook) as creating substantial growth opportunities," they said in a note on Thursday morning.

However, others argued Snap faces greater competition than Twitter, with Facebook, Apple, Samsung and Microsoft all copying Snapchat's most innovative features.

“Twitter is in a better position. A poor set of maiden results highlights that Twitter is actually in a better position because although it is stuck in a niche, it remains unopposed in that niche. Management even had the temerity to laugh off the threat from its much larger and far more powerful rival, Facebook, which is successfully replicating Snap’s innovations to great effect," said Edison Investment Research's Richard Windsor.

Read more: What to expect from Snapchat's first earnings since its IPO

"Between the two, Twitter is the better long-term investment but given the choice, we would not have either.”

Campling also noted the dominance of Facebook: "Snapchat’s slowing KPI is coming at a time when Instagram appears to have ‘gone nuclear’ in replicating many of Snapchat’s core services. Coincidence? We think not."

"Over time, whether Snapchat can remain a member of the ‘10x revenue club’ remains to be seen and is questionable in our view," he added.

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