Snap, pop, crackle

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Snap, pop, crackle.

My daughters want me to use Snapchat. They got me into Facebook, albeit as a voyeur rather than an active poster. I've enjoyed their Instagram posts and can understand why they prefer it to the altogether more prolific and public Facebook.

But Snapchat I just don't get.

What's the point of sending and receiving messages that disappear in seconds?  As for putting a dog's face or flower filter on your photos; well, it's funny the first time.

This quick fire method of communicating, this nothing-is-permanent phenomenon is the antithesis of everything I believe in.

But young people love Snapchat and the co-founders of this fast-growing tech company have made it big, with frequent references to "the next Steve Jobs".

I've watched Snapchat, whose parent company is now known as Snap Inc, progress from a nifty concept to a company whose shares lifted 44 per cent on its stock exchange debut in March this year.

Snap was glamour personified — a wizzy technology favoured by the difficult-to-please millennials; university dropout co-founders still in their 20s (one with a glamorous model fiancée); and a rampant fan base. Users are increasing at an astronomical pace as are  improvements and new features destined to maintain the company's momentum.

That was until the company announced its first quarter earnings result last week.

The company is still glamorous — at least amongst its die-hard fan base — but question marks have emerged; the uncertainty will be weighing on other tech start-ups who had hoped Snap would be a benchmark for future hip technology companies looking to list at a silly price on the stock exchange.

So what has gone wrong?

Well, I should acknowledge Snap's stumble may well prove temporary. Facebook faltered in its first year and then heartily recovered. Its shares debuted at US$38 before falling to a low of US$18 in its first year as a listed company. Today Facebook shares trade above US$150.

Snap's biggest issue is the disconnect between management and investors.

Snap's co-founders are probably — quite rightly — scratching their heads as to why their share price fell 22 per cent after their first quarter result, which saw revenues of US$149 million, an increase of 286 per cent from US$38m in the previous period.

The problem was the market was expecting revenue of closer to US$158m and it certainly wasn't expecting a net loss of US$2.2 billion — yes, you read that right!

The actual company loss was 'just' US$208m but a one-off payment — a "CEO Award" for getting the company listed at such a good price — was paid to CEO and co-founder Evan Spiegel during the period.

This compensation was pre-warned in the listing documentation (at the bottom of page 26), and Spiegel has said publicly Snap might never make a profit.

But investors were nevertheless caught up in Snap's hype. Presented with real numbers — and big ones at that — they saw things more clearly. No puppy filter can help this picture.

In March, investors were happy to buy Snap shares, despite not knowing what they were really worth. They were happy for value to emerge one, three or five years into the future, as long as momentum continued.

Three months later though, these same investors are left wondering if they paid too much, if the company will ever deliver on expectations and if Snap might follow in Twitter's footsteps by being cool but never profitable.

Let's hope Snap's popularity and profitability don't go the same way as its photos — disappearing before investors' eyes.


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