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Snapchat Announces Drastic Changes as Stock Tanks After Big Earnings Miss

Snapchat parent company Snap Inc. is getting ready for some drastic changes to turn the corner on revenue and user growth. CEO Evan Spiegel announced during the company’s earnings call Tuesday that they’re working on a big Snapchat redesign to make the service less complicated.

“One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback,” he said. “As a result, we are currently redesigning our application to make it easier to use.”

Spiegel also said Snap was getting ready to roll out new monetization options for creators in 2018. “We have historically neglected the creator community on Snapchat that creates and distributes public Stories for the broader Snapchat audience,” he said. “Developing this ecosystem will allow artists to transition more easily from communicating with friends to creating Stories for a broader audience, monetizing their Stories, and potentially using our professional tools to create premium content.”

Spiegel made these remarks as the company released another disappointing earnings report, posting both revenue and user growth numbers that were significantly below market expectations.

During the quarter ending Sept. 30, Snap generated revenue of $207.9 million, compared to $128.2 million during the same quarter last year. Net losses came in at $443.2 million, compared to $124.2 million a year ago. Investors had expected revenue of $237 million, and sent Snap’s stock down more than 17% in after-hours trading.

But it wasn’t just revenue numbers that were off. Snap also added just 5 million monthly active users during Q3, as opposed to the 8 million that investors had hoped for.

Spiegel blamed the revenue miss on a “dramatically reduced pricing” of the company’s new programmatic ad units, in prepared remarks for Tuesday’s earnings call. The transition to auction-based ad sales led to a more than 60% year-over-year decline of CPMs, he said. The company partially made up for this by increasing page views and ad impressions, with the latter growing 400% year-over-year.

Spiegel also addressed Snapchat’s user growth, which he described as “at a lower rate than we would have liked.” He said the company wants to accelerate user growth in 2018. In addition to the redesign, Snap is also working to rebuild its Android app from the ground up.

Snap also admitted Tuesday that it had overestimated the demand for Spectacles. The company had to write off close to $40 million in unsold inventory and excess purchasing commitments, said CFO Drew Vollero: “Moving forward, we will continue to be in the market place with Spectacles and expect modest revenue from the product line.” Spiegel echoed these remarks during the earnings call, saying: “We made the wrong decision based on early traction.”

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