Snap Inc. SNAP -1.40% on Tuesday said revenue rose 54% in the first quarter from a year ago, but that missed analyst estimates and fell nearly 20% short of the previous quarter as efforts to wrest a larger share of advertisers’ budgets were impeded by Facebook Inc. and Alphabet Inc.’s Google.
The Venice, Calif.-based company’s shares were down 16% in after-hours trading.
A recent redesign of the company’s Snapchat app apparently failed to reignite the app’s slowing user growth.
The $230.7 million in revenue that Snap recorded missed the forecast of $243 million from analysts polled by FactSet. Advertisers typically spend more in the fourth quarter than the first quarter because of holiday ramp-ups in November and December, but analysts have said it is unusual for a company’s revenue to be so seasonal early in its life as a public company.
“Pretty disappointing,” said Youssef Squali, an analyst with SunTrust Robinson Humphrey Inc. He had expected Snap to do better in the quarter because advertisers typically spend more money during the Olympics, which took place in February. “They missed on virtually every metric,” he added.
Snapchat added about 4 million daily users during the first quarter, bringing its total user base to 191 million. Analysts surveyed by FactSet expected Snap to add 7 million daily users.
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Snap had launched a redesign of its Snapchat social-media app in February that was aimed at broadening its business beyond its core audience of teens and young adults. The first-quarter results offer the first look at how the redesign affected Snapchat’s growth.
“A change this big to existing behavior comes with some disruption,” Snap Chief Executive Evan Spiegel said Tuesday.
The new version of the app elicited mixed reviews. In the weeks after the rollout hit most phones, more than 1.2 million Snapchat users signed a petition to roll back the revamp.
The number of daily users on Snapchat was lower in March, after the redesign rolled out, Mr. Spiegel said, adding that it was above the number of daily users Snap had in the fourth quarter. Snapchat users still used the app for more than 30 minutes a day on average following the redesign, Mr. Spiegel said.
“Advertisers are actively looking to diversify their digital investments from the two biggest players,” said Jim Cridlin, global head of innovation at WPP PLC’s Mindshare unit, referring to Google and Facebook. “But on Snap, the users just aren’t there.”
Mr. Spiegel defended the redesign. Now that public-facing content and personal posts on the app are separated, friends don’t have to compete with professional creators, he said. And retention for new, older users has increased.
“We still have a lot of work to do to optimize the new design,” he added.
Snap said its loss narrowed in the first quarter to $385.8 million, or 30 cents a share, from $2.2 billion, or $2.31 a share, a year ago. In that 2017 quarter, Snap included a $2 billion one-time hit from stock-compensation expenses related to its IPO.
Research firm eMarketer expects Snap’s share of the digital advertising market to grow to 0.7% this year, well below the 48.9% of global digital advertising revenue that eMarketer expects Facebook and Google to control in 2018. Facebook’s revenue rose nearly 50% in the first quarter to $11.97 billion, and advertising revenue for Alphabet Inc.’s Google jumped 24% to $26.6 billion in the same period.
Snap has struggled to manage expectations as a publicly traded company. In each of its first three quarters as a publicly traded company, Snap missed Wall Street’s revenue expectations, and shares plunged following each report. In the fourth quarter, however, Snap exceeded Wall Street’s forecasts.
Write to Georgia Wells at Georgia.Wells@wsj.com
Appeared in the May 2, 2018, print edition as 'Snap’s Results Fall Below Estimates.'