Snap CEO Evan Spiegel Needs to Admit That the Company Is In Trouble
How can investors trust a CEO who pretends that the problems with his business don’t exist?
Stop looking so sassy, Snapchat ghost. You're in trouble.
PHOTO CREDIT: Getty Images
Snap Inc.'s first earnings report as a public company was a disaster. The stock market knows it.
Shares in the maker of Snapchat fell 25 percent in after-hours trading -- which is especially notable since so many stockholders are still barred from selling by the lock-up period, as financial journalist Dan Primack pointed out. The tumble would likely be worse otherwise. Users only increased 5 percent quarter-over-quarter, while average earnings per user decreased. Revenue was up by a large percentage, coming in just shy of $150 million, but that's less meaningful when you're starting with a small number. Some investors anticipated the weak results and shorted the company's stock aggressively.
Perhaps the rest of the investors should be concerned that the executives on the earnings call sounded positively chipper, as if they hadn't had a disappointing quarter or missed guidance at all.
damn, $SNAP sounds precisely as arrogant on this call as if it actually had a good quarter-- Alex (@alex) May 10, 2017
The dismal growth in daily active users is fine and dandy, the executives implied, because its audience still dwarfs most TV companies. That's a red herring -- as ad dollars increasingly leave TV for digital, Snapchat will be competing against other social media platforms, not the once-mighty likes of ESPN. Right now the company looks poised to limp along like Twitter instead of charging ahead a la Facebook and Instagram.
Answering questions from analysts, CEO Evan Spiegel returned to the theme of "creativity" multiple times, emphasizing how much current users enjoy and return to the app, as well as the company's own ability to innovate. He derided the focus on daily active users, dismissing many companies' efforts in this area as cheesy "growth-hacking" that Snap wants to rise above. Spiegel admitted that the need for a high-end smartphone and strong cellular connectivity inherently limit Snap's growth in developing countries, at least until their amenities catch up with the rest of the world.
One analyst asked Spiegel and his team why an advertiser would choose Snapchat instead of "dumping more money into Facebook." Chief strategy officer Imran Khan said that Snapchat's full-screen, full-sound option is the best mobile ad product in the world. What Khan's didn't explain was why he and Spiegel they can win against Facebook, when the latter company has vastly more users as well as more mature targeting and analysis capabilities.
Until Snap can make a more compelling case for itself, the company had better learn how to brace Wall Street for bad news. Overpromising and underdelivering isn't a recipe for success, not even for a company whose CEO can never be fired.