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After "sad" Snapchat redesign, Snap loses one-fifth its value

Snapchat update sparks backlash
Snapchat faces wave of criticism over update 05:32

Investors can be as fickle as friends on social media, a lesson Snap learned after a discouraging earnings report caused the stock to shed one-fifth of its value on Wednesday. 

Snap blamed its Snapchat redesign -- which prompted Kylie Jenner to describe the service as "so sad" earlier this year -- saying it isn't paying off the way it had hoped. CEO Evan Speigel described the backlash as a "disruption" that resulted in a slowdown in the company's customer growth. 

The number of daily active users rose only 2 percent in the first quarter of 2018 from the fourth quarter of 2017. That represents less than half the growth Snapchat reported in the fourth quarter, which reached 5 percent. 

The slowdown means Snapchat may have lost out on gaining 3 million new users in the first quarter, according to Wedbush analyst Michael Pachter. For investors banking on the company's rapid growth, those numbers are cause for alarm.

Snapchat's journey from start-up to tech giant 05:46

"Decelerating growth trends, fierce competition for user mindshare and advertiser dollars, and a history of being hugely unprofitable keep us on the sidelines," Pachter wrote in a research note. He said he expected the company to report 194 million daily active users in the first quarter, but the company reported 191 million daily active users.

Snap shares plunged in early trading on Wednesday, shedding one-fifth of their value. The stock reached a low of $10.96, placing it below its previous low of $11.28. Shares are trading below their IPO price of $17, set in March 2017. 

Investors were also spooked by the company's forecast that its problems will linger into the second quarter. 

"First, as we think about our year-over-year revenue growth rates, we are planning for our Q2 growth rate to decelerate substantially from Q1 levels,' chief financial officer Drew Vollero said on a conference call to discuss the results. 

Revenue growth will likely sink below analysts' expectations for a 62 percent increase, Pachter noted. He lowered his price target to $10 from $12.50, partly because of the company's warning about slowing sales growth.

"Snap's economic losses are likely to exceed $1 billion this year," he added, "with no clear path to profitability."

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