Snap losses deepen after Spectacles sit in storeroom

LOS ANGELES – Snapchat’s parent could have used a fun filter — say, some sparkly rainbows — to cheer up a gloomy quarterly report that was worsened by a $40 million charge for too many unsold sunglasses.

Snap’s shares sank 17% in afterhours trading Tuesday after the Los Angeles-based company reported sales of $207.9 million, up 62% from a year ago, but short of the $236 million in sales forecast by analysts polled by S&P Global Market Intelligence.

Net losses widened to $443 million from $124 million. Hurting the bottom line: Spectacles, unveiled last year as a must-have accessory for the selfie-obsessed generation, weren’t such a hit. Snap said it took a $40 million charge due “to excess inventory and purchase commitment cancellations.”

User growth failed to live up to the torrid expectations Wall Street has for the young company. Daily active users rose 17% from a year ago, to 178 million, or just 3% from the prior quarter.

CEO Evan Spiegel said he wanted to respond to complaints Snapchat is hard to use by re-designing the app.

“The re-design will be disruptive to our business in the short term ... but we’re willing to take that risk for what we believe are substantial long-term benefits to our business.”

Facebook’s Instagram app, which competes with Snapchat, now has 500 million daily active users. Instagram has copied many Snap features using a more straight-forward interface.

Snap has a lock on young users, age 13-34, some of whom say they enjoy the app because its set-up doesn’t encourage older users (parents) to join.

A year ago, analysts saw Snap Inc. as the next big thing in tech, possibly as huge as Facebook.

The company went public in March. Since then, the road turned quite rocky. The stock has fallen from an initial close of $24.48 to a low of $11.28 in August, but has been creeping back up. Tuesday the stock closed at $15.12.

Snap makes its money from advertising and looked to expand to products as well. Its first product, the Spectacles video sunglasses, started as a highly sought item when it was introduced in trendy vending machines.

“We were very excited by the initial reception,” said Spiegel, but then he made the wrong decision to order too many parts to make more. “We weren’t able to sell as many spectacles as we had hoped to,” he added.