Rumors that Snap Inc. grossly overestimated demand for its camera-equipped glasses were seemingly on point.
In its third quarter earnings report issued Tuesday, Snap wrote off $39.9 million in charges related to excess inventory reserves and purchase commitment cancellations. In other words, Snap is sitting on a lot of Spectacles that it can't sell.
The company's issues extend beyond unsold inventory.
For the three-month period ending September 30, Snap generated $207.9 million in revenue. Wall Street was expecting around $237 million. All things considered, the company turned in a net loss of $443 million on the quarter.
Like rival Twitter, Snap is also struggling with user growth.
Snapchat added just 4.5 million daily active users during the quarter, a three percent increase compared to the previous quarter. Analysts were expecting closer to eight million new users. Nevertheless, the addition pushes the total number of DAUs up to 178 million.
Share value in Snap plummeted on the news. Things have recovered slightly in after-hours trading but the stock is still down more than 17 percent.
Things may get worse before they improve.
In a letter to investors, CEO Evan Spiegel said Snap is working on a redesign of their application that'll make it easier to use. There is a strong likelihood, however, that the redesign will disrupt their business in the short term as they don't yet know how the community will respond once they begin to use the updated app. Spiegel said it's a risk they are willing to take because they believe it'll deliver substantial long-term benefits.