By No Means Game Over for Snapchat
Snap probably wishes its earnings report, released Wednesday, would disappear.
In fact, the young company has now broken the First Law of IPOs: Don’t blow your first financial report as a public company. It is certain to piss off investors, especially the ones who bought into the dream during your IPO roadshow mere weeks ago.
In the case of Snap, whose Snapchat disappearing messaging platform is popular with youngsters but under attack by Facebook fb , turning in disappointing results meant not meeting Wall Street’s expectations. Its revenue was on the low side, its user growth was positively Twitter-like (that’s not a good thing), and its losses were astronomic. In fact, Snap lost $2.2 billion in the first quarter, most of which was due to employee compensation costs. (Another no-no: Public investors hate to see a company’s employees, particularly its top management, getting rich when they are losing their shirts.)
It is by no means game over for Snapchat, a clever company whose clever founders captured the zeitgeist once and can do so again. But with a 25% plunge in its stock price in after-hours trading—back to about the $17 a share at which it first sold stock to the public—Snap is now in the penalty box. Its young founders control their company, which was much commented on at the time of Snap’s IPO. And so investors truly have only themselves to blame for their disappointment. Management is no hurry to please anyone other than themselves.
Snap snap is going to be a wild ride. Public investors need to decide in they plan to go along for it, bumps and all.