WeChat owner Tencent takes 10pc stake in Snap

BI Intelligence

BI Intelligence

The company admitted yesterday that Snapchat, its image messaging and multimedia mobile app, is not as user-friendly as it could be, and as a result the company has chose to do a major redesign, which may be a hindrance of growth in the short-term, but the company foresees it will be beneficial in the long-run. Founder and chief executive Evan Spiegel admitted that the company must do more to grow and outlined new plans to redesign the app which is popular among younger audiences. The announcement came after Snap posted its third quarter earnings report, which showed weak revenue and user growth.

The company posted a net loss of $443.2m for the third quarter, with shares down 20% in pre-market trading on Wednesday morning. J P Morgan Chase & Co reissued a neutral rating and set a $14.00 price target (down from $16.00) on shares of Snap in a report on Monday, September 25th.

Snap's revenue was well below expectations at $207.9 million, missing the consensus estimate of $236.9 million by $29 million. The company had revenue of $181.70 million for the quarter, compared to analyst estimates of $186.49 million.

"Tencent and Snap are not obligated to disclose changes in Tencent's ownership of our Class A common stock, so there can be no assurance that you, or we, will be notified of any such changes", Snap writes. We're willing to take that risk for what we believe are substantial longterm benefits to our business. Eleven investment analysts have rated the stock with a sell rating, twenty-two have given a hold rating and fourteen have given a buy rating to the company's stock.

The $2bn (£1.5bn) stake makes Tencent one of Snap's biggest shareholders and gives it a valuable ally against Facebook, which has attempted to crush Snapchat by poaching numerous app's best features. The company's self-service advertising system has made spending there easier, with 80 percent of ad impressions now delivered through the system, even if it caused prices to fall.

For Tencent, despite the problems, Snap still represents a major opportunity to sink its teeth into a service that has very little overlap with its current business, and a lot of potential promise if Snap can fix some of its issues.

Snap also indicated it was cutting back on Spectacles, its video recording sunglasses.

Snap's user growth in the last three months was about half what investment analysts expected.

Spiegel is now planning to redesign the Snapchat app.

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