Snap bites back at prediction of shrinking Snapchat user base

Snap bites back at prediction of shrinking Snapchat user base

EMarketer forecast is ‘flawed,’ doesn’t take into account new Android app, company says

Snap Inc. shares sank Wednesday after a forecast predicted that Snapchat’s user base would shrink for the first time this year, but the company fought back against the study and called it “flawed.”

Third-party data source eMarketer significantly changed its forecast for Snap SNAP, -2.67%  Wednesday morning, predicting that Snapchat users would decline 2.8% in 2019, which would be the first time that users declined over a full year. Previously, eMarketer had predicted a 6.6% gain in Snapchat users for 2019, but analysts said that a redesign of the Snapchat app had turned off many users and sent them toward Facebook Inc.’s FB, +0.14%  competitive Instagram app.

“Many users didn’t like how Stories and chats were mixed together in a confusing redesign that went into effect in late 2017 and was broadly available by early 2018,” eMarketer forecasting analyst Showmik Podder said in a statement.

Snap shares fell by as much as 6.3% in Wednesday morning trading after the forecast was released, but the stock bounced back and ended the session with a loss of 2.7% after Snap strongly disagreed with the forecast.

In a statement, a spokesman for the company called eMarketer’s methodology “flawed,” noted a recent Android app update that the company thinks will be a positive, and reiterated that Snap forecast flat user growth for the first quarter in its most recent earnings report.

“[eMarketer’s] user forecast is more than 10 million off from Snap’s publicly available reach on our ad-buying tool, its thesis is narrowly focused on the app redesign from over one year ago, and its methodology draws on self-reported survey data that’s unreliable in our core 13-34 year-old demographic,” the spokesman wrote in an email.

Stifel analyst John Egbert seemed to agree with Snap, writing in a note to clients Wednesday that the drop in Snap’s shares “appears unwarranted” and that eMarketer’s methodology for calculating monthly active users is “unclear” since it differed significantly from reported data points.

EMarketer spokesman Douglas Clark defended the forecast, saying that eMarketer focuses more on monthly active users than daily active users, the metric that Snap has long preferred. He also said that eMarketer will wait for data regarding newer efforts such as the Android app before factoring that into the forecast.

“EMarketer’s forecast is based on an unbiased, multipronged approach where we look not only at the Snap ad-buying tool, but also combine that with an analysis of numerous third-party survey and traffic data about Snapchat’s usage and other technology adoption metrics, such as internet and social media usage,” Clark wrote in an email.

Snap stock has largely struggled since the company went public in early 2017, and has traded lower than its IPO price of $17 a share for more than a year amid concerns about a flagging user base. The company showed in its fourth-quarter earnings that users were not declining, leading to a huge bounce for shares, which have more than doubled this year, growing nearly 120% before Wednesday’s struggles. The S&P 500 index, in comparison, has increased 14.8% thus far in 2019.

Snap expects to report first-quarter earnings and user numbers on April 23. Investment analysts who cover Snap on average expect daily active users to gain sequentially, to 187.2 million from 186 million, though that would be down from 191 million at the end of the first quarter last year, according to FactSet. Analysts on average expect daily active users to reach almost 194 million by the end of 2019, which would be a 4.3% gain from the end of 2018.

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