20% Of Snapchat's Market Cap Just Disappeared After Company Admits It May Have Committed Suicide

It's deja vu all over again.

Exactly 6 months after Snapchat reported abysmal Q1 earnings - its first since going public - which crushed its stock, the company has done it again reporting earnings that disappointed on every single metric, and missed across the board with revenues and user growth failing to meet Wall Street expectations, as cash burn remained ridiculous, while the net loss tripled to a whopping $443MM from $124MM one year ago.

Here is the Q3 breakdown:

  • Revenue of $207.9MM missed est. of $235.5MM
  • GAAP Net loss of $443 million, almost three times greater than the $124MM loss one year ago.
  • Adjusted EPS of $0.14 which
  • EBITDA loss of $179MM, vs Est of $194MM
  • The company burned through $220 million in free cash flow, roughly the same as a year ago as SNAP remains a massive cash burn machine.

But the main reason the stock is getting pummeled, is that Daily Average Users rose from 173 to 178 million, once again missing expectations of 180.5 million and putting in question the whole "growth" aspect of the business.

Even scarier, in a bizarre statement, CEO Evan Spiegel said Snap is currently redesigning the application to make it easier to use, which however a "strong likelihood" of disrupting his own business in the short term, Oh, and Spiegel also warned that he doesn’t yet know how the behavior of SNAP users will change when they begin to use the updated app. In other words, Snapchat admitted it may have just committed suicide.

One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use. There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial longterm benefits to our business.

Finally, adding insult to injury was this disaster:

Unfortunately, we misjudged strong early demand for Spectacles and purchased more inventory than we now anticipate being able to sell. As a result, we recorded a $39.9 million non-recurring expense primarily related to excess inventory and purchase commitment cancellations. Moving forward, we will continue to be in the market place with Spectacles and expect modest revenue from the product line.

Perhaps the only good news is that SNAP had $2.3 billion in cash, which however is down $900 million from just 2 quarter ago, and at this rate, the company will have to see more shares in under one year.

The result of the above: 20% of SNAP's market value just disappeared as the street threw up all all over yet another crushed growth story.