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Home / Business / Snap has problems in an area where it must succeed

Snap has problems in an area where it must succeed



Snap Inc.'s user numbers were not as bad as expected on Tuesday's earnings report, but Snapchat's parent company suddenly has problems in the area where it needs to succeed.

Snap

SNAP, + 3.99%

reported lower losses than expected in the first quarter and 4 million new users since year-end, 2 million more than Wall Street expected. However, Snap also reported that a closely watched number – average revenue per user or ARPU – fell sequentially to $ 1

.68 per user in all geographic regions, compared to $ 2.01 in the fourth quarter. Snap already has the lowest ARPU score among public social media companies, CNBC noted last month. In the fourth quarter, Snap was $ 2.01 at ARPU versus $ 7.37 at Facebook Inc.

FB, + 1.29%

and $ 9.48 for Twitter Inc.

TWTR, + 15.64%

.

As Twitter has proven in recent years, a social media service can survive without constantly adding a ton of users as long as it increases the amount of money each user receives. Before Tuesday, bulls could at least point to a huge growth in Snap's ARPU, especially in Europe and the rest of the world, where Snap is in dire need of a boost.

However, this changed in the first quarter as ARPU's growth outside North America reached record lows. In Europe, Snap reported that $ 77 was collected per user. This represents an increase of 47% over the previous year. In the rest of the world it was 97 cents, an increase of 68%. It is the first time that ARPU growth in the rest of the world has been below triple-digit percentage growth, and Europe's growth rate has dropped from 57% in the last quarter and 120% a year ago.

Snap's stock, which had initially jumped more than 10% over earnings news, fell back with the results before the conference call began. The stock ended the session by 2.5% hours.

Snap puts his hope for growth outside the US on a redesigned app for Alphabet Inc.

99 (+1)%, + 1.34%

+ 9%, + 1.26%

Android operating system, last week the final rollout. The updated app will be critical to achieving broader growth among young users overseas, who often have lower cost smartphones with slower connections.

"There are billions of Android devices worldwide now gaining access to an enhanced Snapchat experience. We look forward to expanding our Snapchat community into new markets," said co-founder and Chief Executive of Evan Spiegel Tuesday, adding that the company was upset with what it saw on the Android rollout.

Investors ARPU growth rates are set to recover thanks to this Android app outside the US, but those responsible also added another Problem in this regard – a slower transition in Europe to more self-promotion – ARPU growth in North America slowed down last year, and Snap blamed the shift to self-serving ads, which is still the case when North America North America was the only region where ARPU grew 34% in the first quarter

"Europe … was really behind Nor damerika and the switch to self-service, therefore, the impact on our annual turnover and ARPU trends is more pronounced, while the rest of the world started the auction "Interim CFO Lara Sweet said in the conference call.

Since its IPO, Snap was clouded by the view on Wall Street that the largest growth of its user base was over and after the stock went public had peaked. The company must now better monetize its users, especially overseas, to achieve the growth Wall Street is looking for, and the enhanced Android app and overcoming delays in moving to self-service ads are the key to this potential ,

If Snap is again to be viewed as a promising investment, either the growth of users or the average revenue per user and preferably both must be revived.

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