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Snap stock dives 21% after its first earnings report shows Snapchat’s user growth is slowing

Snap isn’t the only social media firm whose stock has suffered after its first quarterly earnings report.
Snap isn’t the only social media firm whose stock has suffered after its first quarterly earnings report.
(Peter Macdiarmid / Getty Images)
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By the measurements Snap Inc. says it prioritizes — the time users spend on its Snapchat app, how often they open Snapchat, messages sent and average revenue per user — the Los Angeles company experienced a rosy first quarter.

But by the measurements Wall Street has scrutinized — daily users, revenue and adjusted earnings — Snap is underperforming.

Investors’ disappointment in Wednesday afternoon’s earnings report came across clearly Thursday: Snap shares closed at $18.05, down more than 21% from their closing price a day earlier.

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The fall wasn’t much of a surprise. Snap had been slammed in after-hours trading Wednesday, with shares tumbling as much as 25% to just above the initial public offering price of $17.

Many analysts cautioned investors not to lose confidence in the company yet, saying one quarter is too short of a time to judge the firm’s prospects for long-term success. But some suggested the threat posed by Facebook — which has mimicked some of Snap’s key features — could pose a major problem.

Here’s what the analysts say

“Snap has become an innovation leader — for both consumers and advertisers...We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability.”

-- Mark Mahaney of RBC Capital Markets, which acts as an investment bank for Snap

“We have noted the significant negative impact of competitive offerings from the likes of Facebook.”

-- Scott Kessler, analyst with CFRA Research

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“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.”

-- Richard Windsor of Edison Investment Research

Snap isn’t the only social media firm to suffer after its first quarterly earnings report. Facebook stock dropped 10% the first time it reported its earnings, in 2012, and Twitter Inc. stock fell 22% after the company first reported its earnings in 2014.

Read more: Snap isn’t the only tech firm to get hammered after its first earnings report »

In Chief Executive Evan Spiegel’s first major public address in nearly two years, he told investors that he was pleased with Snap’s performance in the first quarter. Spiegel also brushed off Faceboook Inc.’s copycat video-sharing technology.

Read more: Evan Spiegel isn’t worrying about Snapchat’s slowing user growth »

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makeda.easter@latimes.com

@makedaeaster


UPDATES:

1:50 p.m.: This article was updated with analysts’ notes and Snap Inc.’s closing price.

This article was originally published at 7:10 a.m.

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