Brief:

• Snap reported disappointing sales growth for Q1 2018 as a major redesign of its Snapchat image-messaging app frustrated users and damped advertising growth. The app’s user base grew 15% to 191 million from 166 million a year earlier, but missed the average analyst estimate of 194.3 million, per Bloomberg.
• Revenue grew 54% to $230.7 million from $149.6 million a year earlier, but was less than Wall Street forecasts of $244.9 million. Revenue gains will "decelerate substantially" in the current quarter from Q1 2018, Snap said in prepared remarks as the company shifts ad sales to programmatic systems that handle placements through digital auctions. The company’s average revenue per user was $1.21, less than the $1.27 forecast by analysts, per CNBC.
• CEO Evan Spiegel said Snapchat is currently rolling out an update that rolls back parts of the redesign that made the app harder to use, TechCrunch reported. The new update sorts communication by recency and moves Stories from friends to the right side of the app. What remains is the separation of friends and creators. 

Insight:

Snap is going through very public growing pains as the company seeks to build an advertising business amid daunting competition from search giant Google and more established social media companies like Facebook.

Snap's slowdown comes as Facebook announced plans to invest more in the "stories" function that allows posting of videos and photos that disappear in 24 hours, a feature copied from Snapchat. Facebook’s WhatsApp chat app has a similar feature that’s used 450 million times a day, the company said.

Advertisers would like to have more alternatives to the Facebook-Google “duopoly,” but Snap needs to get more brands on board with its platform. A survey by RBC Markets found that 73% of marketers don’t spend on Snapchat, an indication of the app’s challenges, per Bloomberg.

Snapchat’s redesign was a major factor in the Q1 results. The company sought to expand its user base by separating conversations with friends from posts by media companies and public figures, but managed to alienate many users who pleaded for the old design. Bloomberg reported that Spiegel admitted in a call to investors that the new look also disrupted growth among increasingly apprehensive advertisers. Executives plan to keep tweaking the design, which adds more uncertainty about how Snapchat will appeal to users while boosting ad sales. A shift to programmatic ad sales also damped sales growth as Snap cut headcount of its sales teams.

Spiegel stood behind the redesign, telling investors that its user base was stabilizing among iPhone users while the Android version needed further refinements.