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The number of users of Snap Inc. was not as bad as expected in Tuesday's earnings report, but Snapchat's parent company is suddenly struggling in the only area in which it must succeed.
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reported lower than expected losses in the first quarter and 4 million new users since the end of the year, 2 million more than Wall Street had forecast. But Snap also reported that a tightly monitored figure – the average revenue per user or ARPU – declined sequentially across all geographic regions, from $ 2.01 per user to $ 1.68 in the fourth quarter. Snap already has the weakest ARPU among social media companies, as CNBC pointed out last month. In the fourth quarter, the $ 2.01 ARPU from Snap was compared to $ 7.37 for Facebook Inc.
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and $ 9.48 for Twitter Inc.
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.
As Twitter has proven over the last two years, a social media service can survive without adding a ton of users, provided it increases the revenue it generates for each user. Before Tuesday, bulls could at least point to a huge growth rate in Snap's ARPU, particularly in Europe and around the world, where Snap desperately needs a boost.
But that changed in the first quarter as ARPU's growth reached unprecedented lows outside of North America. In Europe, Snap said it had collected 77 cents per user, up 47 percent from last year, compared to 97 cents in the rest of the world, up 68 percent. This is the first time that the ARPU's growth in the rest of the world is below the three-digit percentage gains, and the growth rate in Europe has gone from 57% in the previous quarter to 120% a year ago .
Snap's shares, which had initially risen more than 10% from the earnings announcement, declined before the teleconference began. The action ended the session after hours normal up 2.5%.
Snap has set its hopes for growth outside the US on a redesigned application for Alphabet Inc.
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Android operating system, completing the final deployment last month. The updated application will be essential to continue to generate more growth among young overseas users who often have cheaper smartphones with slow connections.
"Billions of Android devices around the world now have access to an improved Snapchat experience and we hope to expand our Snapchat community into new markets," said co-founder and CEO Evan Spiegel, adding that later, the company was excited about what she had seen since the deployment of Android.
Investors will need to see ARPU's growth rates bounce off the United States thanks to this Android app, but leaders have also noted another concern in this regard: a slower than expected transition in Europe towards more ads self service. ARPU's growth slowed in North America last year and Snap blamed the transition for self-serve ads, which still occur on the other side of the pond , North America bouncing. North America was the only region where ARPU growth increased in the first quarter, up 34%.
"Europe … is really lagging behind North America and self-service, so the impact on our revenues and ARPU trends from one fiscal year to the next, while the rest of the world was starting to auction, "said the acting chief financial officer. The agent Lara Sweet said during the teleconference.
Since its IPO, Snap has been overshadowed by Wall Street's vision that the most significant growth of its user base was complete and that it was made public after the peak of growth. The company must now better monetize its users, especially overseas, to get the kind of growth that Wall Street is looking for, and its improved Android application and timeliness for the transition to self-serve advertising is the key to this potential.
If Snap wants to be seen as a promising investment again, it must reinvigorate the growth in the number of users or the average revenue per user, and preferably both.
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