Snapchat reports mere 166 million daily users, growth nosedives

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The stock price of Snap Inc (NYSE: SNAP), the owner of virtual messaging app Snapchat, plummeted 23% during the extended trading on Wednesday after reporting its quarterly financial results for the first time as a public company.

Just last week, Facebook posted revenue growth in the double digits for its first quarter, which it has done consistently since 2012 when it had its initial public offering.

During its first quarter ending on March 31, Snap had 166 million daily active users, less than Wall Street estimates.

The figures show Snap and Snapchat continue to grow in all aspects, but that increase has slowed down on a quarterly basis, particularly after Facebook introduced Instagram Stories as a jab to its rival past year.

On the loss front, nearly $2 billion of the loss went towards stock compensation costs related to the IPO. When Facebook tried to rip off the Snapchat stories feature during August 2016, with Instagram stories; it worked in the favor of Facebook. It spent $2 billion to pay out compensation for its IPO, and lost another $208 million during its first three months of 2017.

The disappearing messaging app, popular with teenagers, attracted huge interest when it went public in NY earlier this year - sending its shares 44% higher in its first day of trading.

Growth in Snapchat's user base began to slow down past year after Facebook's Instagram copied Snapchat's "stories" feature, which lets users post short video clips that disappear after 24 hours.

Snapchat has been facing massive competition from Facebook recently with the company owned Instagram introducing Instagram stories. While Snapchat struggles to grow outside of North America, Facebook flourishes, in part due to adjustments the company has made so that its app operates via the mobile web in countries where data isn't as easy to come by, and speeds are slow. It would mean a lot to us. If you take out the the employee bonuses and other costs, Snap's losses essentially doubled. These features aren't what many users go to Snapchat for.

Analysts also expressed surprise over Snap's apparent dismissal of the threat from Facebook. "Comparing Facebook's broadcast-style functionality to Snapchat's more private-style communication isn't entirely fair at this point".

"Snapchat's growth is being cannibalized by Instagram Stories in literally every single market in the world", DJ Kang, SVP of Research at consumer research company ValuePenguin said in a recent report.

The slowing rate of growth is not surprising for the U.S. market, given Snapchat's huge popularity among its core group of young users. eMarketer estimates that 84.4% of 12- to 17-year-olds, and 78.6% of 18- to 24-year-olds, use the app at least once per month.

The company contends it can generate healthy and sustainable revenue with advertising aimed at its users, the bulk of whom are in a coveted demographic of people 18 to 34 years old. But to try and appeal to a 15-year-old at the same time as a 30-year-old might end up alienating both groups. With Facebook, he said, that became a social strategy. This could be an app such as Houseparty, a group video chat app that's popular with teens, or Musical.ly, a video social network that lets people create and share short music videos.

And the cycle continues, as Facebook won't be far behind in copying that, too.

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