BENGALURU (REUTERS)- Snap Inc fell short of Wall Street forecasts for revenue and regular users after a redesign of its Snapchat messaging app turned off some long-time fans and advertisers, sending its shares tumbling 16 per cent on Tuesday (May 1).
Revenue growth will likely slow substantially in the second quarter, the company said, showing it still faces an uphill battle after an app overhaul meant to fend off bigger rival Facebook Inc as it adds Snapchat-like features.
The number of daily active users on Snapchat, crucial for generating advertising revenue, rose to 191 million in the quarter ended March 31, short of consensus expectations of 194.15 million, according to Thomson Reuters.
The figure was 15 per cent higher than a year earlier, compared to growth of 18 per cent in the previous quarter.
Snap shares plunged 16.5 per cent to US$11.77 in after-hours trading.
"The redesign didn't just make users unhappy, it also made advertisers more concerned," said eMarketer analyst Debra Aho Williamson, "That's not a good position to be in."
On the plus side, Ms Williamson said, "Snapchat loyalists are highly engaged, using the app multiple times per day. And Snapchat's ad formats are still among the most creative."
For the quarter that ended in March, total revenue rose 54 per cent from the same period a year earlier to US$230.7 million in what was Snap's fifth quarterly earnings as a public company. Analysts on average had expected revenue of US$244.5 million.
Company executives acknowledged that the new design hurt results but said they were sticking with the plan to keep content from friends separate from other publishers. This approach will propel growth in the long run, they said.
"The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both," chief executive Evan Spiegel said on a conference call with analysts. "As we have mentioned on our past two earnings calls, a change this big to existing behaviour comes with some disruption."
The redesign was meant to draw in a broader audience but sparked criticism from users including celebrities Kylie Jenner and Chrissy Teigen. The changes also created some "apprehension" among advertisers, Mr Spiegel said.
Chief strategy officer Imran Khan said the bad publicity surrounding the redesign made some advertisers rethink their use of Snapchat.
"When there is a lot of negative news in the press every day, it does give people pause," Mr Khan said.
Snapchat will counter that by providing better measurements of return on investment, he said.
User growth at the company's disappearing-message app has repeatedly fallen short of Wall Street's expectations since its heavily hyped initial public offering in March last year.
The firm posted a net loss of US$385.8 million, or 30 cents per share, compared with US$2.21 billion, or US$2.31 per share, a year earlier.
Snap's adjusted loss per share of 17 cents was in line with analyst expectations.