The company behind Snapchat reported significant losses
Thursday and missed expectations for user growth in its second earnings report since going public.
While Snap earlier this year said that it “may never achieve or maintain profitability,” the company reported deepening losses of $443 million, a 282 percent jump from last year's $115 million, in part on increased costs on research, sales and marketing.
The company said that 173 million people now use its service every day, a 21 percent increase from the previous year. UBS analysts, however, expected for Snap to have 174 million users.
Snap's shares dropped as much as 16 percent in after-hours trading, to $11.50.
“100 percent of the problems that we are seeing at Snapchat are self-inflicted,” James Cakmak, an analyst with Monness Crespi Hardt and Co., told Bloomberg. Snap is not investing enough in its content and not educating potential and existing users on its new features, he said.
The risks for Snapchat include stiff competition, high costs, a lack of a successful business track record and slowing growth in its user base, said Brian Wieser, a research analyst at Pivotal Research Group, in a note to clients.
Pitched as a fresh, daring alternative to Facebook, Snap garnered widespread attention when it went public in March, debuting at $17 per share. Since then, Snap has worked to court advertisers and media outlets looking to connect with the company's younger audience, who have been drawn to its ephemeral messages, creative filters, and short-form content. But the company has struggled to convince Wall Street that it can outmaneuver Instagram or that it can become a viable advertising destination to rival Facebook and Google's dominance on the Web. The company's stock price closed down 19 percent from its IPO price.
“Obviously advertisers and agencies want to explore a third alternative, which is what Snapchat has become,” Cakmak said. But to gain additional revenue from users, he said, Snapchat would have to beef up its content and rapidly improve its product.
The company pulled in about $182 million in revenue, up from $72 million during the same period last year.
The video-focused company must prove it can withstand direct challenges from Facebook's Instagram and Google. Instagram began mimicking Snapchat's key features last year and boasts a much larger following — 250 million people daily use Instagram Stories, a feature developed by Snapchat that allows users to post disappearing pictures and videos for a 24 hour period. And Google, according to the Wall Street Journal, will soon offer publishers a platform to showcase multimedia content on mobile phones, similar to Snapchat's “Discover.”