Snap's first-quarter revenue falls short as users balk at redesign

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Credit: Patrick T. Fallon/Bloomberg

Snapchat founder and CEO Evan Spiegel is defending the company's handling of the app's redesign despite the volatility it brought with it.

"A change this big to existing behavior comes with some disruption," Spiegel said in a statement Tuesday as the Snap Inc. released its quarterly results.

Snapchat started the year by rolling out its redesign to all users, saying it wanted to separate personal messaging and professional media. It placed videos from friends in one section and clips from publishers, TV networks and celebrities in another.

"We firmly believe that it's the right thing to do for our community, because it ensures that our various products maintain a cohesive vision and stay true to our mission," Spiegel said.

The redesign caused a backlash among prominent users like Kendall Jenner and regular Snapchat fans. Industry observers were concerned it would impact overall usage and the ad business. Snapchat even started testing a new redesign that puts Stories—public Snapchat videos—from friends on the media side of the service.

Snapchat on Tuesday was vague, however, about the actual effects on waht happened to usage after the initial redesign. "While we had an average of 191 million daily active users in Q1, our March average was lower, but still above our Q4 average," Spiegel said.

Snapchat averaged 187 million daily active users in the fourth quarter.

Investors would likely find that language troubling. One Wall Street analyst who asked not to be named called it "odd" and "evasive."

As for ads, Snap reported first-quarter revenue that missed analysts' projections. Revenue rose to $230.7 million from $150 million during last year's first quarter, but didn't meet predictions for $244.9 million. The company's shares plunged as much as 15 percent.

Snap has had trouble sustaining momentum as a public company. In addition to altering the way its app works, Snap also lost several top executives and cut 7 percent of its staff in a reorganization.

"Snap is going through a painful maturation phase," said Daniel Ives, an analyst at GBH Insights. Wall Street was looking for "further red flags around the company's much-discussed app redesign," he said.

Growth will also be hurt by the redesign in the second quarter, Snap Chief Strategy Officer Imran Khan said in prepared remarks to investors. The company has aimed to set itself up to brands and advertisers as an alternative to Alphabet Inc.'s Google and Facebook, which generate the majority of growth in digital marketing. Advertisers are hungry for another option, but some of them are still experimenting.

"Snap had its work cut out in terms of convincing marketers to engage more substantively with its platform," Mark Mahaney, an analyst with RBC Capital Markets, said in a note to investors. His firm's survey found that 73 percent of marketers don't spend on Snap.

Snap shares fell as low as $12 in extended trading. Their March 2017 IPO price was $17.

The company's net loss in the recent period narrowed to $385.8 million, or 30 cents a share, according to a statement on Tuesday.

-- Bloomberg News with Ad Age staff

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