How Did Snap's New Platform Affect User Numbers?

Snap (NYSE: SNAP) reported earnings last week, and while it posted 54% year-over-year growth on the top line, its quarter was littered with warning signs.

In this clip from Industry Focus: Tech, analysts take a look at the company's monthly and daily active user counts, why those counts were so alarming, and why Snap's response is far from heartening.

A full transcript follows the video.

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This video was recorded on May 4, 2018.

Dylan Lewis: Why don't we start out talking about Snap? The company released earnings earlier this week. Revenue was $231 million. Wall Street was expecting $245 million. Some disappointment there. That's 54% year over year growth on the top line. Of course, on the bottom line, the company lost money, not surprising given that they're in growth mode. The narrative with this company, though, has really been user-focused, I think, specifically over the last quarter. A lot of concerns about what this redesign with their app might do to user retention and engagement. Looking at the numbers, it seems to have had an impact, Evan.

Evan Niu: Right. Snap went public so early in its lifetime, relative to companies that go public. I think that's why investors are so focused on this user aspect, much more than most social media companies in general. Just because, their ad business is so young that it really does revolve very heavily around how the user base is responding to these types of changes. There's been a lot of controversy over this redesign. Celebrities have been bashing it, you had social media hoaxes go viral saying it's going to come back, you had online petitions, all sorts of backlash. CEO Evan Spiegel has kind of defended it, but now what we're seeing is, it's really having a very noticeable and quantifiable impact on these metrics. Daily active users came in at 191 million, which is up just 2% sequentially from the fourth quarter, which is their lowest sequential growth rate they've ever posted. So, that number speaks for itself.

Lewis: And I think, importantly, management noticed that the average in March -- this is a daily active figure -- was lower than the overall Q1 average. So, there's probably some drop-off happening there that's tied to either the redesign or some performance problems that they were running into on their Android app. If you're trying to work through exactly where the number stands and how big that drop-off was, management noted that the March average was above the 187 million daily active users that they posted as of Q4. So, they're hoping to right the ship with fixes to Android and to the tweaks and walk-backs on some of the changes that they've made in the app. But that's not a trend that you want to see, particularly for a company that was essentially pre-monetization about a year and a half ago.

Niu: Exactly. They're testing out these different versions of it. They're really still committed to this idea of separating your social content from your friends vs. professional content from media publishers. Which makes sense in some ways, but it is starting to weigh on the financials. I don't think they're going to go back to the way it was before, because they're very committed to it, they just want to tweak it and find the right balance. But, how is the user base going to respond to all these constant changes, while Snap clearly doesn't have a very clear vision on what it wants? So, they're still testing it out, but, I don't know.

Dylan Lewis has no position in any of the stocks mentioned. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.