Snap is having a bad day

Ho boy — there are bad days and there are bad days in an earnings season, and this is definitely the latter for Snap.

The company released its quarterly report for its financial performance in the third quarter this year, and as a result, the company’s stock is absolutely cratering. It’s bad even by recent-IPO status, which are especially vulnerable to swings in shares as Wall Street tunes its models to where it thinks the company is going — and it dropped nearly 20 percent after the report came out today. What may be more concerning, which we’ll get to later, is that the cost of hosting its users still seems to be an issue.

We’ll let the stock chart today speak for itself:

For better or worse, Snap’s comparison for Wall Street is going to be Facebook. That means when that investors are going to set its valuation as some function of its growth, the amount of money it makes off its users, its costs and so on in a similar fashion as it does with Facebook. The difference is that Facebook’s advertising business is much more robust and predictable, as is its user growth, while Snap’s advertising business is still a work in progress. So, for the foreseeable future, it will probably be vulnerable to these kinds of swings.

It was an overall very weak quarter for the company, which saw tepid quarter-over-quarter DAU growth and revenue numbers that fell well below what industry observers were expecting. That’s not great for a company that’s looking to make a play to advertisers that it’s a strong alternative to Facebook or Google because its users have a different kind of behavior. The pitch is that they come on Snap many times a day and spend quite a bit of time, and there’s an opportunity to get products and brands in front of them at opportune times when they are highly engaged.

Back to the hosting component, one of Snap’s big concerns is its big bills for running its business, and it looks like that is creeping up right now. The company said its hosting cost per DAU was 68 cents this quarter, compared to 61 cents last quarter and 64 cents in the third quarter a year ago. Its capital expenditures also rose, up to $25.9 million in the third quarter this year compared to $17.2 million in the same quarter last year and $19.4 million in the second quarter this year.

And here’s a look at its ARPU, the amount of money it makes off each user:

This is throwing out a ton of numbers, but the net-net here is that Snap still isn’t in firm control of its costs as it looks to grow its user base. When it isn’t making as much money as Wall Street expects, and its costs are still a concern, things simply don’t look good for the company — and the Street will wipe billions of dollars off its market cap.

Here’s the final slash line for the company:

  • Q3 revenue: $207.9 million, compared to $236.9 million Wall Street estimates (up 62 percent Y/Y)
  • Q3 earnings: loss of 14 cents per share, compared to a loss of 15 cents per share Wall Street estimates
  • Q3 DAUs: 178 million, up 17 percent year-over-year from 153 million and 3 percent quarter-over-quarter from 173 million.
  • Q3 ARPU: $1.17, up 39 percent year-over-year from 84 cents and 12 percent quarter-over-quarter from $1.05