Snap shares sink as redesign weighs on results

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(Reuters) – Snap Inc missed Wall Street forecasts for first-quarter revenue and regular users after a redesign of its Snapchat messaging app turned off some long-time fans and advertisers, sending its shares sharply lower on Tuesday.

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

The company has overhauled its app and added automated ad buying tools in an effort to hold onto users and advertisers as bigger rival Facebook Inc introduces Snapchat-like features to Instagram.

The number of daily active users, crucial for generating advertising revenue, rose to 191 million in the quarter ended March 31, short of consensus expectations of 194.15 million, according to Thomson Reuters I/B/E/S.

The figure was up 15 percent from a year earlier, compared to growth of 18 percent in the previous quarter.

Snap shares plunged 16.5 percent to $11.77 in after-hours trading.

Year-over-year revenue growth will likely slow substantially in the second quarter, chief financial officer Drew Vollero said in prepared remarks, because of weaker pricing for ads and custom creative tools.

For the quarter that ended in March, total revenue rose 54.1 percent from the same period a year earlier to $230.7 million in what was Snap’s fifth quarterly earnings as a public company. Analysts on average had expected revenue of $244.5 million.

Company executives acknowledged that the new design hurt results but said they were sticking with the plan to keep content from friends separate from other publishers.

“The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both,” Chief Executive Evan Spiegel said in remarks prepared for a conference call with analysts.

“As we have mentioned on our past two earnings calls, a change this big to existing behavior comes with some disruption, especially given the high frequency of daily engagement of our community.”

The redesign was meant to draw in a broader audience but sparked criticism from users including celebrities Kylie Jenner and Chrissy Teigen.

The changes also created some “apprehension” among advertisers, Spiegel said.

“We are now focused on optimizing the redesign based on our ongoing experimentation and learning,” he said.

User growth at the company’s disappearing-message app have repeatedly fallen short of Wall Street’s expectations since its heavily hyped IPO in March last year.

The Venice, California-based firm posted a net loss of $385.8 million, or 30 cents per share, compared with $2.21 billion, or $2.31 per share, a year earlier.

Reporting by Munsif Vengattil in Bengaluru; editing by Patrick Graham and Meredith Mazzilli

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