Brief:

• Snap, the parent company of image-messaging app Snapchat, said the app's user growth had declined for the first time, slipping 2% to 188 million in Q2 2018. Despite the drop in users, Snap’s revenues rose 44% from a year earlier to $262.3 million and its losses narrowed to $353 million from $443 million in Q2 2017.
• The company declined to provide a forecast of its expected audience size for the third quarter, but Snap CFO Tim Stone said that "historically, Q3 [daily active user] growth rates have trended down, both year-over-year and sequentially compared with Q2." That statement triggered a sell-off in Snap shares after regular trading hours, per The Wall Street Journal.
• Meanwhile, Saudi investor Prince Alwaleed​ Bin Talal bought 2.3% of the company for about $250 million, according to a statement. Alwaleed made the transaction on May 25 after first meeting with Snap CEO Evan Spiegel and Imran Khan, the company's chief strategy officer, in 2015, according to CNBC.

Insight:

A 44% annual jump in sales would make many companies euphoric, but Snap always has had to contend with high expectations since becoming a public company last year. Unfortunately for its investors, the company has steadily disappointed them with less-than-expected user growth that makes it harder to compete with more established rivals like Facebook and Google. Advertisers desperately want an alternative to the two companies, which dominate the digital ad market. While Google reported solid results, Facebook offered a disappointing forecast of audience growth as the social media giant struggles to cope with this year's Cambridge Analytica data-sharing scandal and ongoing efforts to stamp out political propaganda, fake news and hate speech on its platform.

Snap's results didn't even meet the diminished expectations of financial services firms like Cowen, which had forecast user growth of 1 million during the quarter to 192 million people. Last month, Cowen published a study that said advertisers were turned off by Snapchat and showed much greater preference for rival Instagram, the Facebook-owned app with 1 billion users worldwide. Media buyers said their clients prefer to advertise on Instagram Stories (90%) over Snapchat Stories (10%), referring to the app features that string together several images or videos into a single post.

However, Snap did narrow its losses and grew sales as it seeks to generate direct-to-consumer commerce and to appeal to advertisers and social influencers. Snapchat last month debuted a native commerce feature to let influencers earn money from products sold through their posts. Snap also created more self-service features, like its Ad Manager tool introduced last year, that opened its platform to a wider group of advertisers. It created a Snapchat Certified Partners program to connect marketers with third-party providers of ad tech tools and in December introduced Lens Studio to simplify the creation of AR content.