Early this month, social messaging service Snap (NYSE: SNAP) reported its second quarter results that beat estimates. However, the market is diappointed with the sequential decline in the number of its daily active users. 

Snap’s Financials

For the second quarter of the year, Snap’s revenues grew 44% to $262 million, beating the analyst estimate of $250.4 million. The company ended the quarter with a net loss of $353 million, down 20% from net loss of $443 million a year ago. Non-GAAP diluted net loss per share was $0.14 versus analyst estimate of loss of $0.17 per share.

Among other metrics, daily active users (DAU) were 188 million, up 8% from 173 million a year ago and down 2% from 191 million a quarter ago. The market was looking for 192 million DAU for the quarter. Snap’s average quarterly revenues per user (ARPU) increased 34% to $1.40, compared with $1.05 a year ago, and beating the market’s forecast of $1.30.

Snap also issued its first revenue guidance. For the third quarter, it expects revenue between $265 and $290 million or a growth between 27% and 39%. Adjusted EBITDA loss is expected to be between $(185) million and $(160) million, compared to $(179) million in Q3 2017.

Snap’s New Offerings

During the quarter, Snap introduced Group Video Chat that allows video chat with up to 16 friends at one time.

Snap also introduced Lens Explorer that makes it easy to discover and unlock Lenses built by Snapchat users around the world. Since the launch of Lens Studio in late 2017, creators have submitted over 100,000 unique Lenses that have been viewed by Snapchat users over 3.5 billion times.

It also ventured into augmented reality with Snappables, new Lenses for sharing augmented reality experiences with one or many friends. Users can control Snappables using touch, motion, and facial expressions.

Snap has also released a new version of Spectacles, which has a smaller profile and is water resistant. Users can record videos with improved audio as well as press and hold to take a photo. Snaps captured transfer to Snapchat in HD up to 4 times faster than the original version of Spectacles.

Snap has also introduced Snap Kit to help developers build products powered by features of Snapchat. It has partnered with companies such as Pandora and Tinder so that Snapchat features can be shared within each of their platforms and on Snapchat.

Snap has also made Snap Pixel available to all advertisers, regardless of size. Snap Pixel helps advertisers measure the cross-device impact of their campaigns. After its global release in Q2 2018, it has measured 70 million purchase events.

Snap has also launched three new initiatives for campaign planning and analysis. Audience Insights help advertisers understand characteristics about Snap’s audience, Advanced Location Targeting for better targeting with location and point + radius features, and Delivery Insights to understand campaign performance.

Snap also launched two new initiatives to help content creators monetize via its programmatic marketplace. It brought Commercials, a non-skippable 6-second Snap Ad that appears in Discover Shows, to Ads Manager. It also launched its Private Marketplace, which is an invite-only tool within Ads Manager that publishers can use to allow specific advertisers to target their content.

Snap’s Declining User numbers

Analysts believe that the declining user numbers are due to the poorly received app redesign that separates personal messages of friends and family from those of celebrities and commercial accounts. It also changes the sorting of the Stories feed to focus on profiles most interacted with. Analysts believe that this change to Stories feed was in contrast to with Snap’s image as a real-time platform.

While the app redesign was a move to attract more users in the face of rising competition from Facebook and Twitter, Snap still hasn’t got it right.

Its stock is trading at $11.89 with a market capitalization of $15.2 billion. It had listed at $17 in March last year. The stock is close to its 52-week low of $10.5 it hit in May this year. It hit a 52-week high of $21.22 in February this year. Before listing, Snap had raised $2.65 billion in its last funding round in May 2016 that valued it at $20 billion.

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