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Why Snap’s User Growth Is Losing Steam

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Snap’s 2Q17 revenue and earnings

Snap (SNAP), the parent of messaging app Snapchat, announced its fiscal 2Q17 results on Thursday, August 10. Snapchat added fewer users than Wall Street expected, while revenues disappointed. The company’s shares fell ~15% in aftermarket trading.

Snap reported a net loss of $0.16 per share and posted revenues of $181.7 million in the quarter. Wall Street analysts had projected a net loss of $0.14 per share and revenues of ~$186 million. The company thus missed expectations on all fronts: earnings, revenues, and user additions. Still, its revenues more than doubled in fiscal 2Q17, up from $71.8 million in 2Q16.

Snapchat added seven million new users in fiscal 2Q17, compared with an addition of eight million users in fiscal 1Q17. Analysts were expecting an addition of close to 10 million users in fiscal 2Q17, but Snap saw a net loss of $443 million in fiscal 2Q17—almost four times its $116 million in 2Q16.

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Instagram gaining popularity

Snap posted ARPU (average revenue per user) of $1.05 for fiscal 2Q17, which was also less than what analysts expected. Snap is seeing a slowdown in growth, though it was still up 16% from the previous quarter. ARPU is an important metric for Snap, even if its user growth is stalling, because it could still drive growth.

Facebook (FB) makes $7.03 per daily active user. In fact, the main factor behind Snap’s slowing growth is Facebook. The latter’s Instagram app has been copying a number of Snapchat’s popular features, including the “dog face” filter.

Instagram has also copied Snapchat’s “Stories” segment. The popularity of Instagram’s “Stories” has encouraged Facebook to use the feature in WhatsApp as well. It’s safe to say that Snapchat’s popularity has since declined.

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