- Snap has had a chastening start to the year, missing revenue targets and posting slow growth in daily active users in the first quarter.
- Some have blamed the Snapchat redesign, but the investment bank Piper Jaffray says the problems run deeper and are a result of Snap's structure and culture.
- Snap has acknowledged that its sprawling campus in California could create problems.
- Insiders have described Snap's culture as secretive and filled with upheaval and say CEO Evan Spiegel dictates product decisions from the top down.
- Snap shares fell to a record low on Wednesday after its earnings disaster.
Snap, the company that owns the messaging app Snapchat, has had a fairly chastening start to the year.
Snap reported first-quarter earnings on Tuesday, missing Wall Street expectations by a healthy measure and worrying the market about the repercussions of an unpopular redesign.
Snap's revenue of $230.7 million fell short of analyst expectations by about $13 million, while Snapchat's number of daily active users rose by just 2%, to 191 million, in the first three months of the year — the slowest sequential growth rate since Snap went public last year.
Snap shares fell to a record low of $11.22 on Wednesday after its earnings disaster, slipping below its previous low of $11.28.
The finger of blame was pointed squarely at Snapchat's redesign, rolled out earlier this year. Many users have responded negatively to the new look, which CEO Evan Spiegel said aimed to separate "the social from the media." It has also been buggy on Android.
"We still have a lot of work to do to optimize the new design," Spiegel said on Tuesday, adding that "a change this big" was bound bring disruption.
Credit Suisse said the earnings were "conviction-testing," while Deutsche Bank said Snapchat risked losing its "cool status" because of the redesign and was testing advertisers' patience. It questioned why the redesign had not been "more aggressively rolled back already."
Piper Jaffray: Snap has problems because it is 'poorly structured'
Perhaps the most brutal verdict came from the investment bank Piper Jaffray, which suggested that Snap's problems run deeper than an unpopular redesign.
"Snap is a poorly structured company that is demonstrating a clear pattern of mismanagement," it said in a note to clients.
Piper Jaffray's sharp remark brings to mind some of the insights Snap provided on its structure and culture before it went public in March last year.
Snap, based in Venice Beach, California, doesn't have a typical headquarters, instead using a series of private houses as offices. It acknowledged in a filing with the Securities and Exchange Commission last year that its sprawling campus might be a risk to the company's future.
"This diffuse structure may prevent us from fostering positive employee morale and encouraging social interaction among our employees and different business units," it said.
In practical terms, that means a lack of central meeting space, as well as staff members having to walk 15 minutes between buildings and sometimes not knowing where their colleagues are based.
Snap has said it will consolidate more employees at its Santa Monica office, a move it began in March.
Business Insider spoke to more than a dozen current and former Snap employees in October 2016 about the company's working culture. From the report:
"At Snapchat, which recently renamed itself Snap Inc., secrecy and upheaval come with the job. Evan Spiegel, the 26-year-old cofounder and CEO, moves across the company's network of Venice Beach outposts in a black Range Rover, flanked by his security detail. New employee orientations begin with a 'Fight Club'-like list of forbidden topics of discussion. And internal projects blossom out of nowhere — and vanish suddenly — without explanation."
Spiegel was also said to dictate product decisions from the top down — one former executive said that "nothing happens there without Evan's stamp of approval."
That would put him very close to Snapchat's redesign and the flop of Snap's Spectacles glasses, whose problems have persisted for the company as it has failed to iron out some of the product's fundamental issues.
Piper Jaffray says that something has to change, or "the negative news cycle around Snap will continue and advertisers will likely continue to approach Snap skeptically."
SEE ALSO: Snapchat users hate the redesign so much, it could have turned away millions of users