(Source: techcrunch.com)

Snap’s Q2 earnings was another failure on a long, downward path for the social media company as user growth slowed under the pressure of Instagram. Snap added 7 million daily active users to reach 173 million with a 4.2% growth rate, slower than the 5% growth that got it to 166 million DAU in Q1. Snap missed on revenue that reached $181 million with a loss of -$0.16 earnings per share. That’s compared to Wall Street’s estimates of $186.2 million in revenue and a loss of -$0.14 EPS, and $149.6 million in Q1 revenue.

Investors we spoke to wanted to see daily active user count grow 5 million to at least 171 million, and average revenue per user above $1.05 or $1.10. Average revenue per user was actually $1.05, and total revenue grew 153% year-over-year. But with slowing user growth, that wasn’t enough to satisfy investors. $Snap had closed at $13.69 today just before earnings, and immediately fell over 5% on the bad news.

Investors hoped that Snap’s shrinking user growth rate was just a phase, and that it would bounce back from competition. It saw 17.2% growth in daily users in Q2 2016, but that fell dramatically after Instagram launched its clone of Stories to a low of 3.2% in Q4 2016. Yet Snap couldn’t build on last quarter’s 5% growth, and the slippage has dragged down its share price.

Snap has had a tough quarter since it fell way short on its Q1 earnings report and its share price fell from nearly $23 to around $18. That’s after pricing its May IPO at $17 and seeing a big first day pop. Further competition has depressed the share price, as Instagram Stories and WhatsApp Status now each have 250 million users, making the clones much bigger than Snapchat as a whole. Snap only caught a break last week when rumors that Google was interested in acquiring it briefly perked up the share price.

Snap has been aggressively courting advertisers in hopes of getting its revenue growing faster, adding self-serve and bulk ad buying tools and striking ad measurement partnerships. It scored a viral hit with its dancing hot dog augmented reality feature, but that fad has come and gone.

Snap has plenty to fix if it’s going to claw its way back to its $22 billion private funding valuation or its $31.4 billion post-IPO pop price. An algorithmically sorted feed, better relations with brands and influencers, and a clear strategy for fending off Faceboo could all help secure Snapchat’s future. But that could require diverting from some of the product philosophies that got it this far.

For more on what Snap should do next, read our list: 8 ways to fix Snapchat

Featured Image: Bryce Durbin/TechCrunch

More Info: techcrunch.com