Since its IPO in early March, Snapchat shares have struggled. The stock is now down 23% (as of June 8th) since early March. Over the last five days, the stock has declined by 12%.
The concern among the investor community has been consistent throughout this period: what is the future trajectory of Daily Active Users (DAUs)? When the company first released its S-1 in early February, bearish investors were concerned about the DAU growth trajectory, where the year-over-year growth had decelerated sequentially for three consecutive quarters.
Then, when the company reported 1Q17 results in early May, the company slightly missed DAU consensus expectations by roughly 1 million DAUs. This further supported existing slowdown concerns.
Amid strong competition from Instagram, investors have now shifted their concerns over DAU growth to the upcoming quarter. This week, external data analyzing app store downloads concluded that Snapchat downloads in the first two months of 2Q were down sharply from the prior quarter trend. While downloads are not exactly the same as DAU growth, the implications are not positive.
Currently, data from Visible Alpha shows that analysts expect a deceleration in DAU growth to ~22% in 2Q and a further deceleration to the high teens in the following quarters.
Importantly, over the last month (prior to their 1Q report), DAU growth estimates have moved downward by roughly ~1-2 points in 2017 and ~2-3 points in 2018. Investors will be watching this closely to see if DAU growth continues to revise downward given recent data points.
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