Big problem with Snap CEO Evan Spiegel's, SnapChat investors it can fight Instagram , II LIVE: Snap Q4 earnings , II

 

  The Snapchat messaging application is seen on a phone screen August 3, 2017. REUTERS/Thomas White/File Photo

Investor enthusiasm for the instant messaging application company faded after its initial public offering last year.
But the Venice, California-based firm said that customers were now staying longer on the Android version of its app, after software bugs were fixed, and advertisers were taking to an auction-based advertising system that made it cheaper and easier to buy ads.
Snapchat’s daily active users rose to 187 million in the quarter that ended Dec. 31 from 178 million in the third quarter, beating analysts’ average expectation of 184.2 million users, according to financial data and analytics firm FactSet.
Daily active users rose 18 percent from a year earlier, reversing a trend of slowing growth. The figure is closely watched by investors who hope user growth can be translated into advertising revenue.
Revenue rose 72 percent to $285.7 million, beating analysts’ expectations of $253.2 million as companies advertised more in the key holiday quarter.
Instagram, with more than twice the daily users of Snapchat and backed by Facebook’s large bank account, has threatened to stamp out its rival by copying features such as photo filters and disappearing slide shows.

 

Confidence that the two could coexist in the social media sector was shaken when Snapchat’s user growth stalled last year. Analysts, though, said that Snapchat appeared willing to look inward and try to fix problems rather than be distracted by Instagram.
“They are going to continue to be competitors, and Snap is doing a creditable job of competing for revenue,” analyst Michael Pachter of Wedbush Securities said.
Snapchat is courting advertisers in an internet ad market dominated by Facebook and Alphabet Inc’s Google, which together control half the market share, according to research firm eMarketer.
While Snapchat ads once were primarily bought by large brands with household names, revenue from smaller businesses more than doubled from the third quarter to the fourth, Chief Strategy Officer Imran Khan said on a conference call.

FILE PHOTO: A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, New York, U.S. on March 2, 2017. REUTERS/Lucas Jackson/File Photo

“We know that in order to truly scale our business, advertising on Snapchat has to be really easy,” Khan said.
Ad prices have fallen as Snapchat lets advertisers use self-serve software to buy, but the number of ad impressions was up more than 575 percent from a year earlier in the fourth quarter, Chief Financial Officer Drew Vollero said.
Vollero said more than 90 percent of ads were sold on Snapchat’s auction, which is capable of handling larger volume than a human sales staff, and the company tripled the number of advertisers buying there.
Shares traded at $17.09 after the bell, up 22 percent, and had traded even higher.
Amid concerns Snapchat would not be able to keep growing rapidly in the face of Instagram’s competition, Snap’s stock price had fallen by half from its $29.44 high after its initial public offering last year and not traded above the IPO price of $17 since July 10. Snap had not reported upbeat results since going public.
In addition to fixing bugs, the company is redesigning Snapchat to make it easier to use. Chief Executive Evan Spiegel said the new version had rolled out to 40 million users and would launch worldwide in the first quarter.
Acknowledging a perception that Snapchat is popular mainly among millennials, Spiegel said: “We believe that the redesign has also made our application simpler and easier to use, especially for older users.”

 

Snap posted a net loss of $350 million, or 28 cents per share, compared to a loss of $170 million, or 20 cents per share, a year earlier.
Excluding items, Snap reported a loss of 13 cents. Analysts on average expected a loss of 16 cents per share, according to Thomson Reuters I/B/E/S.
Revenue per user rose 46 percent from a year earlier to $1.53, while cost of revenue per user rose 5 percent to $1.02.
Still, the company expects its year-over-year revenue growth rate to moderate in the current quarter compared with the fourth quarter, Vollero said.

There's one big problem with Snap CEO Evan Spiegel's latest indictment of Facebook

 

Getty ImagesSnap CEO Evan Spiegel (left) and Facebook CEO Mark Zuckerberg

• Snap CEO Evan Spiegel took a veiled shot at Facebook on his company's earnings call on Tuesday.
• When asked about the issue of smartphone addiction, Spiegel tried to distinguish between Snapchat and Facebook, noting that his company, unlike the latter, hasn't focused on encouraging users to "like" posts or follow other users.
• But Snap encourages users to keep coming back to its app in other ways - most notably through streaks.

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Snap CEO Evan Spiegel loves to take a dig at archrival Facebook when given the opportunity.
And who can blame him? After all, Facebook has been shamelessly copying Snapchat , Spiegel's app, for years now.
But in rushing to condemn Facebook on Tuesday, Spiegel may have left himself wide open for some harsh criticism.

 

During Snap's fourth-quarter earnings conference call on Tuesday, an analyst asked Spiegel for his thoughts on the recent debate about smartphone addiction and apps that encourage users to waste time. The question was a clear reference to Facebook, which has recently come under fire for allegedly promoting such things.
During Facebook's earnings results last week, CEO Mark Zuckerberg took pains to drive home the message that his company was now dedicated to ensuring its users are spending "meaningful" time on its social network , rather than brainlessly scrolling through junk content.
Snapchat's Spiegel must have been looking forward to this question because he didn't skip a beat before launching into this response [bolded for emphasis]:
"From the beginning we've been really thoughtful about how we approach these issues. It's one of the reasons why we never had public-facing metrics around followers or 'likes' and why we always try to control who distributes content very widely on our platform.
"I think if you look at the evolution with the redesign, what we're trying to say is that there's a really big difference between talking to your friends on the telephone and broadcasting on a TV channel . And I think our society has noticed that difference for a really long time, and that's why there's different regulations and rules around communicating with your friends and broadcasting media.
"For us, as we evolve the product, this allows us to really reinforce the great things about our communications products, bring friends closer together, and at the same time provide more distribution to really high-quality content. So I think we're trying to stay way ahead of the curve on this stuff, and it's something we care a lot about."

 

Sounds like a pretty reasonable perspective and a trenchant critique of Facebook, where the line between what's public and what's private is often blurry.

Not as innocent as it sounds

There's only one problem: When it comes to apps that encourage users to waste time, Snapchat is one of the worst offenders.
Sure, Snapchat might not traffic in the "likes" and follower counts that Instagram, Facebook, and Twitter employ to keep their users hooked. But Snapchat has its own flavor of digital nicotine - the streak.
As anyone with kids knows, Snapchat has a special counter that keeps track of the number of consecutive days two friends have exchanged messages - a streak. The messages don't need to be a meaningful interaction - often times, someone will point the phone camera at their feet or at the sky and perfunctorily fire off the photo to keep the streak alive.
Many teens have multiple streaks going with their various friends , and consider a broken streak something akin to a personal slight. The obsession is so real that many younger Snapchat users will even entrust their accounts to a friend to maintain the streak if they expect to be away at summer camp or someplace else where unfettered smartphone use is restricted.

Those in glass houses...

The streak habit is a great thing for Snap, which measures its success in large part by how often users are on its app. Indeed, the company's number of daily active users is one of the most important bits of data that Snap reports to investors every quarter.
Spiegel can brag about not showcasing "likes" in his app, but streaks achieve a similar end - and the value of his business is built around them.

SnapSnap CEO Evan Spiegel.

Snap , the company that makes the Snapchat app, will report its fourth-quarter 2017 earnings on Tuesday shortly after the markets close.
Here's what Wall Street is expecting, according to Bloomberg analyst estimates:

• EPS (adjusted): -$0.16
• Revenue: $252.8 million

Snapchat announced last year that it would redesign its app in order to help juice user growth and make it easier to use for newcomers. But that was three months ago, and the redesign still hasn't rolled out to most users. It was originally supposed to launch last December , Business Insider first reported. The company will also allow users to embed content from stories on the web, the first time Snap has formally allowed content to be shared outside the core app.
Snap appears to be exploring alternative revenue streams beyond advertising in Snapchat. Last week it began selling Snapchat merchandise like T-shirts, dancing hot dog plush dolls, and hats inside the app.