Snap shares whacked after earnings miss forecast

What's next for Snap Inc.?

Snap (SNAP) shares plunged 21 percent in after-hours trading after the social media company's debut earnings report as a public company left investors unimpressed. 

The owner of Snapchat, the popular disappearing message application, reported a net loss of $2.2 billion in the January-to-March period. About $2 billion of that loss was from stock compensation costs for its March 2 initial public offering

A year earlier, before going public, it lost $38.8 million. Snap lost $2.31 per share in the first quarter, compared with 14 cents a year ago. Analysts polled by FactSet were expecting a loss of $1.92 per share.

Although revenue nearly quadrupled to $149.6 million, from $38.3 million in the year-ago period, but it's less than the $158.3 million that analysts were expecting. 

Snap shares, which priced at $17 for its IPO and soared more than 40 percent in its first day of trading, slid more than 25 percent on Wednesday to $17.09 after the market closed.   

Is Snapchat a viable business model?

The number of Snapchat daily active users, people who open the app at least once during a 24-hour period, grew 36 percent year over year to 166 million.

Growth in Snapchat's user base slowed last year after Instagram copied Snapchat's "Stories" feature, which lets users post short video clips that disappear after 24 hours. Not to miss out on the trend, Facebook also launched disappearing stories this year.  

During a conference call to discuss Snap's earnings, CEO Evan Spiegel declined to speak about how many users Snapchat added in the quarter, instead focusing on daily engagement with viewers as a way to drive advertising.

Asked if he was concerned about the growing popularity  of Facebook's Instagram Stories, Spiegel brushed off the suggestion, saying "People are going to copy your products if you make great stuff.

"At the end of the day, just because Yahoo has a search box doesn't mean it's Google," he added.

Facebook recently announced Instagram Stories has 200 million daily active users.

Several analysts on the call pointed to Snap's slow advertising revenue growth, questioning why a company with loyal users is having difficulty monetizing ads. Spiegel said the issue is a question of education and placement, "I think now it's an education process, I think early adopters are showing great results."

As with many up-and-coming Internet companies, the perpetual question is whether Snap can quickly grow its user base and, in time, turn a profit. The company, founded in 2011, lost more than $500 million last year on revenue of about $400 million, it disclosed in regulatory filings. And while its user numbers are increasing, that growth has slowed amid competition from Facebook and Instagram, which Facebook owns.

Snap's earnings follow on the heels of Facebook's strong first-quarter results. The social media giant posted revenue of $8.03 billion in the period versus $5.38 billion in the year-ago quarter, and also beat Wall Street forecasts.