The Real Reason Snap is Growing in Size, Shrinking in Value

What happened

Shares of Snap (SNAP) were taking a dive once again today as the Snapchat parent underwhelmed with its second-quarter earnings report and offered weak guidance for the third quarter.

The stock was down 19% as of 11:54 a.m. ET Wednesday on the news.

So what

Revenue in the quarter fell 4% to $1.07 billion, topping estimates at $946.7 million, as the social media company continued to struggle with a weak digital advertising market even as its daily active user base increased 14% to 397 million. 

On the basis of generally accepted accounting principles (GAAP), Snap reported another wide operating loss at $404.3 million, about even with the quarter a year ago. 

It lost $118.9 million in free cash flow as share-based compensation continues to represent a large portion of its noncash spending at $317.9 million. On an adjusted basis, the company reported a loss per share of $0.02, on par with the quarter a year ago, but better than the consensus for a loss of $0.04.

CEO Evan Spiegel said, “We are excited by the progress we have made delivering increased return on investment for our advertising partners, growing our community to 397 million daily active users [DAUs], and reaching more than 4 million Snapchat+ subscribers.”

Now what

Looking ahead to the third quarter, the company sees DAUs growing to 405 million to 406 million, but the company acknowledged that headwinds in the ad business were persisting, calling for revenue of $1.07 billion to $1.13 billion, or a range of flat to a 5% decline. It also sees a loss in adjusted earnings before interest taxes depreciation and amortization (EBITDA) of $50 million to $100 million.

Despite the user growth, Snap is being challenged by competition from TikTok and has struggled to monetize its messaging platform. Until the company can overcome those challenges and return to revenue growth, the stock is likely to struggle.


Originally published on Fool.com

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