When Snapchat first launched it was just another photo app. Then it added more features, and a whole lot more users, and it seemed to promise something greater, a whole new way of communicating. Then Snapchat rebranded as Snap Inc and became a “camera company” with the rollout of digital goggles it called Spectacles. Finally, in March of this year, Snap became a publicly traded stock.
Today Snap is doing great, so long as you ignore the app, the Spectacles and, most crucially, the stock. After-hours Tuesday the company reported earnings that made its shares do this:
The company beat on earnings (-14¢ per share vs -15¢ expected) but missed on revenue ($208 million vs $239 million) and daily active users (178 million vs 182 million). But it wasn't the headline numbers that sent investors into convulsions. Part of it had to do with this, from CFO Drew Vollero:
“Unfortunately, we misjudged strong early demand for Spectacles and purchased more inventory than we now anticipate being able to sell. As a result, we recorded a $39.9 million non-recurring expense primarily related to excess inventory and purchase commitment cancellations... Moving forward, we will continue to be in the market place with Spectacles and expect modest revenue from the product line.”
Alright, so being a camera company in the iPhone age was a bit of a moonshot. But at least Snap still has its core product to rely on, right? Right...? CEO Evan Spiegel:
One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use. There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial longterm benefits to our business.
On one hand it must be refreshing to hear an executive speak so frankly about the limitations of his company's signature (and basically only) application. Then again, it might not instill confidence among shareholders to hear that it took four years as a private company – and two quarters as a publicly traded one – for management to realize that their central product had a fundamental limitation; and then moreover, that the plan they've concocted to remedy the situation comes with zero guarantees that it won't fuck up the existing (and rabidly loyal) user base. For this, investors are happily watched Snap burn through $443 million in Q3.