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Analyst flames Snap as 'a poorly structured company that is demonstrating a clear pattern of mismanagement' — and thinks its problems run way deeper than the redesign (SNAP)

The finger of blame for Snap's bad start to 2018 has been pointed at the Snapchat redesign, but investment bank Piper Jaffray said the problems run deeper and are a result of Snap's structure and culture.

  • Snap has had a chastening start to the year, missing revenue targets and posting slow growth in daily active users.
  • The finger of blame has been pointed at the Snapchat redesign, but investment bank Piper Jaffray said the problems run deeper and are a result of Snap's structure and culture.
  • Snap is based on a sprawling campus in California, which the company itself has admitted could create problems.
  • CEO Evan Spiegel dictates all product decisions from the top down, and there's a culture of secrecy and upheaval.
  • Snap shares

Snap, the parent firm of messaging app Snapchat, has endured a fairly chastening start to the year.

Snap reported its first-quarter earnings on Tuesday, missing Wall Street expectations by a healthy measure, and worrying the market about the repercussions of an unpopular redesign.

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Snap shares fell to a record low after its earnings disaster. The stock hit $11.22 a share early Wednesday, slipping below its previous low of $11.28.

The finger of blame was pointed squarely at Snapchat's redesign. Users have responded largely negatively to the new look, which aimed to separate "the social from the media," and it is also proving to buggy on Android.

"We still have a lot of work to do to optimize the new design," Snap CEO Evan Spiegel admitted, adding that "a change this big" is bound bring disruption.

Credit Suisse said the earnings were "conviction-testing," while Deutsche Bank said Snapchat risks losing its "cool status" because of the redesign and is testing the patience of advertisers. It questioned why the redesign has not been "more aggressively rolled back already."

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But perhaps the most brutal verdict came from Piper Jaffray. The investment bank thinks Snap's problems run way 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.

Snapchat doesn't have a normal HQ office in Venice Beach, California. It uses a series of dispersed private houses as offices instead, and CEO Spiegel is driven between them in a Range Rover with a private driver. Snap even admitted that its sprawling campus was 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 an S-1 filing last year. In practical terms, this means that there is a lack of central meeting space, staff have to take 15-minute walks between buildings, and sometimes don't know where their colleagues are based. (Snap intends to cure this by consolidating 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, providing this insight into the company's working culture:

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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.

On top of this, Spiegel — still only 27 years old — dictates all product decisions from the top down. "Nothing happens there without Evan’s stamp of approval," said one former executive. This puts him very close to Snapchat's redesign and the Spectacles flop, the latter of which the company is to persisting with, having not ironed out some fundamental issues.

Piper Jaffray said something has to change or "the negative news cycle around Snap will continue and advertisers will likely continue to approach Snap sceptically."

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