August 10, 2017 / 9:34 PM / 3 months ago

Snap's fade could make future IPOs vanish

DALLAS (Reuters Breakingviews) - Snap is haunting the market. The parent of the disappearing-message app reported its second consecutive quarter of disappointing results. Slowing user growth, more losses and fresh fallout from its lousy governance have erased a third of its market value. Others mulling going public may be scared off.

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

The company led by Evan Spiegel reported on Thursday that even as revenue jumped some 150 percent from the same time last year, it fell short of what analysts had been expecting. Losses also widened substantially to $443 million from $115 million.

Most startups can withstand the red ink as long as they keep attracting more people to use their services. For Snapchat, such growth is slowing. It added only 4 percent more daily active users than it had in the first quarter.

Madison Avenue is cooling on the app also known for its filters that turn people into cute animals or giant tacos, according to recent press reports. Several agencies have complained about Snap’s slow adoption of easy-to-use formats. WPP’s Martin Sorrell pledged to double his group’s spending with Snapchat to $200 million, but many others will have to be persuaded to increase their budgets, too.

In the meantime, competition is coming fast and furious. Facebook has copied Snapchat’s popular functions like “stories.” Instagram, owned by the social-media titan, boasts more than 200 million daily active users for stories compared to Snap’s 173 million. Alphabet unit Google also is getting in on the act and trying to entice publishers to its version of Snapchat’s Discover entertainment and media hub.

In March, Snap debuted on the New York Stock Exchange at $17 a share. They were just below $14 before tumbling as much as 15 percent in after-hours trading on Thursday.

Venture-capital-backed tech IPOs have for the most part been performing well. There were seven in the second quarter, a typical amount, according to investment advisory outfit Renaissance Capital, and their shares traded up 18 percent on average.

Recent high-profile experiences, however, including that of meal-kit delivery service Blue Apron, whose stock has tumbled by half since its June listing, easily could temper expectations surrounding other brand-name unicorns such as Spotify, Vice and others waiting to go public. Snap’s fade could make future IPOs vanish.

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