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Illustration: Rebecca Zisser / Axios

Snap Inc. stock fell nearly 20% Tuesday after reporting earnings that fell short of Wall Street's revenue and user growth expectations. Snapchat CEO Evan Spiegel announced that the company is redesigning its app to make it easier to use and understand, which will hopefully lead to increased user adoption.

Why it matters: Snapchat has been assuring investors since going public in March that it's strategic investments in ad technology would drive revenue, particularly in North America, and that the creation of copycat products by rivals, like Instagram and Facebook Stories, would not continue to slow its user growth. Its earnings show that the company still has a long way to go in achieving those goals and redesigning its app is a big sign that it's feeling the pressure to make big changes quickly.

By the numbers:

  • Users: 178 million in Q2 2017, up 16% from this time last year, but missed estimates of 181.8 million expected by FactSet
  • Revenue: $207.9 million, up 62% from this time last year, but missed Thomson Reuters estimates of $237 million
  • EPS: Loss of 14 cents per share vs. loss of 15 cents per share expected by Thomson Reuters
  • Average revenue per user: $1.17 in the latest quarter, up 84 cents from this time last year, but missed analysts estimates of $1.30.

Other key takeaways:

  • User growth: Snapchat continues to focus on user creation, overlaying how many Snaps are created daily by users (3.5 billion) on top of its user growth numbers, which have slowed.
  • Hardware: Spectacles continue to drive losses for the company. Snapchat took a $40M write down for excess Spectacles inventory, that as The Information reported earlier this year, have been sitting in warehouses. Spiegel said on the earnings call that they "made the wrong decision" on the Spectacles product.
  • Advertising: Automated advertising growth is growing tremendously, which is leading to an increase in average revenue per user. 80% of Snap Ad impressions delivered programmatically in Q3, up from 0% one year ago and 60% last quarter.A migration to an automated advertising platform has signifincatly decreased Snap's CPMs (ad rates) but Spiegel notesthat there's been a significant increase in ad impressions. Snap ad impressions have grown 400% year over year. Snapchat's Chief Strategy Officer says he expects the ad auction to get more competitive, and thus the rate will increase in the future.Ad-targeting technology growth is helping to widen its advertiser base to small and medium-sized businesses. "When you show the right ad to the right audience it has more value for advertisers," said Khan. Khan referenced the new Snap Pixel (tracking technology) that it introduced last week.
  • Product:Snapchat is building a new version of its mobile app on Android from the ground up. CEO Evan Spiegel says it will require "significant engineering resources," but it will help expand user adoption on Android. Other key user growth areas include new markets and users 34 and older.Snap is also in the midst of redesign its flagship mobile app to make it easier to use and understand, according to co-founder and CEO Evan Spiegel.

Our thought bubble: Snap's admission about redesigning its app is telling. The company, while long-hailed as the new generation's social network, is beginning to feel some of Twitter's pains.

  • It's not as simple and obvious as Facebook's service, though teenagers seem to naturally and intuitively understand how to use the Snapchat app, Like Twitter, Snapchat's utility can be huge to its users, but it's not always clear to all outsiders, making it harder to attract them.
  • Snap is likely looking over to Twitter with fear that it could have the same fate. (Twitter today doubled its signature character limit in yet another attempt to make its service easier.) This is also important as it continues to compete with Facebook and its subsidiary, Instagram, which have been cloning some of Snapchat's most popular features.
  • Snap has been much more creative in its app's development than either companies, mostly stemming from Spiegel's intuitions, but it now needs to ensure it's as mainstream as rivals Facebook and Instagram.

Go deeper

Updated 5 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Pfizer and Moderna boosters overwhelmingly prevent Omicron hospitalizations, CDC finds — Omicron pushes COVID deaths toward 2,000 per day — The pandemic-proof health care giant.
  2. Vaccines: The case for Operation Warp Speed 2.0 — Starbucks drops worker vaccine or test requirement after SCOTUS ruling — Kids' COVID vaccination rates are particularly low in rural America.
  3. Politics: Biden concedes U.S. should have done more testing — Arizona says it "will not be intimidated" by Biden on anti-mask school policies — Federal judge blocks Biden's vaccine mandate for federal workers.
  4. World: American Airlines flight to London forced to turn around over mask dispute — WHO: COVID health emergency could end this year — Greece imposes vaccine mandate for people 60 and older — Austria approves COVID vaccine mandate for adults.
  5. Variant tracker

Arizona governor sues Biden administration over COVID funds tied to mandates

A teacher prepares a hallway barrier to help students maintain social distancing at John B. Wright Elementary School in Tucson, Arizona, on Aug. 14, 2020. Photo: Cheney Orr/Bloomberg via Getty Images

Arizona Gov. Doug Ducey (R) filed a lawsuit Friday against the Biden administration for ordering the state to stop allocating federal COVID relief funds to schools that don't comply with public health recommendations such as masking, the Arizona Republic reports.

Why it matters: The Treasury Department said last week that the state would have to pay back the money if Ducey does not redesignate the $173 million programs to ensure they don't "undermine efforts to stop the spread of COVID-19."

Federal judge blocks Biden's vaccine mandate for federal workers

President Biden speaking from Eisenhower Executive Office Building on Jan. 21. Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

A federal judge in Texas blocked the Biden administration from enforcing its coronavirus vaccine mandate for federal workers on Friday, citing the outcome of last week's Supreme Court ruling that nullified the administration's vaccine-or-test requirement for large employers.

Why it matters: It's a blow to President Biden's efforts to increase the U.S.' vaccination rates, though much of the federal workforce has already been vaccinated against the virus.