Snap Inc.’s (NYSE: SNAP) shares plummeted during Tuesday’s after-hours, after reporting its first quarter financial results, into Wednesday’s open after it redesigned its user interface. The new changes caused the company to miss estimates in revenue and user growth.
Snap shares fell by 20 percent shortly after the opening bell on Wednesday.
For the first quarter, Snap reported revenue of $230.7 million, increasing 54 percent year over year, but missing Thomson Reuters’ estimates of $244.5 million. The company reported a net loss of $385.8 million or an adjusted EPS loss of $0.17, falling in-line with Thomson Reuters’ estimates.
After Snap launched the new user interface for all users in the quarter, it began to see decreased growth in users. Snap CEO Evan Spiegel intended on the redesign to separate friends and family content from content creators, instead the company lost users in protest against the new layout.
Spiegel said in the earnings call that March users average was lower, but still higher than Snap’s fourth quarter average. In the first quarter, Snap reported 191 million daily active users, growing 15 percent year-over-year, but only 2 percent quarter-over-quarter, showing slowed user growth.
Average revenue per user increased by 34 percent year-over-year to $1.21, lower than FactSet’s estimates of $1.27. Cost of revenue per user increased by 5 percent to $1.03.
“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.” said Spiegel in the earnings call.
Over a million users signed a petition demanding Snap to change its interface back to the original, but Spiegel was adamant on keeping the new redesign. The company kept the new design in order to boost popularity with users and advertisers, which backfired for the company in the quarter. Although, time spent on the platform remained more than 30 minutes per day on average and older user retention rates increased.
Despite changing the platform, Snap said that advertising revenue was not heavily affected. The company reported advertising revenue of $229 million, increasing 62 percent year-over-year, while Snap Ad revenue grew 102 percent year-over-year, said Imran Khan, Snap Chief Strategy Officer. But Snap still understood that the new design “created some headwinds in our revenue.”
Snap’s first quarter earnings resulted in analysts to downgrade, but the consensus for the company’s price target remains at $15.21, higher than its opening price on Wednesday of $11.30. The company maintains merely only 5 buy ratings, with 12 holds and 8 sell ratings.
Snap shares are down 48 percent year-over-year, performing severely under the S&P 500’s gain of 10.8 percent.