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Today Snap reported its first earnings as a public company, and it bombed. Snap’s stock market debut three months ago was the most valuable tech IPO in the US in two years, and certainly the most talked-about. Snap, after all, provides one of the few significant alternatives to the two giants of online advertising, Facebook and Google. If Snap can eke out some space in a field long dominated by this duopoly, that could mean more meaningful competition.

‘Snap is a niche platform. It’s not an alternative, but a complement.’ Brian Wieser, Pivotal Research

But for the moment, the market isn’t optimistic. Snap reported revenue of $149.6 million in the first quarter of 2017, a significant gain from the $39 million it pulled in during the same period one year ago but below Wall Street’s expectations of $159 million. The Los Angeles-based company also added 8 million new daily users in the first three months of the year, a year-on-year growth of 36 percent, compared to 52 percent growth one year ago. Meanwhile, it lost a whopping $2 billion because of stock-based compensation during its February IPO—most notably, the $750 million awarded to CEO and founder Evan Spiegel for taking the company public. In after-hours trading, Snap’s stock plunged 20 percent—and by the looks of things, it could keep dropping.

Needless to say, Snap’s long-term potential won’t be the story many investors will want to hear after these dismal numbers. But they should cut Snap some slack: Snap is like no other company at the moment, even taking Instagram’s aping of many of its features into account. “Snap is a niche platform,” says Brian Wieser, a media industry analyst at Pivotal Research. “It’s not an alternative, but a complement.”

On an internet where fake news, crappy ads, and hate abound, Snap exerts tight control over what gets featured on its platform and how that content gets shared, an approach on which Snap has built a dedicated audience. It’s a business model far removed from Facebook and Google, both built on scale and the (very) long tail of online content. Three months isn’t long enough to tell for sure how Snap’s alternative approach will play out.

Not Disappearing

After all, not all earnings reports really offer meaningful insight into whether a company will succeed or spiral downward. Facebook shares dipped 12 percent after its first report in July 2012 following a less-than-stellar IPO. Today it’s valued at close to half-a-trillion dollars, making it the fifth largest company in the world by market cap. Twitter, by contrast, lost a quarter of its market value after its first report and never really rebounded.

Based on revenue and growth so far, it’s understandable that investors would worry Snap is not looking like the next Facebook. For one, Snap is a money-loser—and not just the 2 billion it reported today. The company lost $514.6 million in 2016, well over the $372.9 million it lost in 2015, hardly a comforting trend. And its growth rate is slowing. After averaging more than 15 million new daily users in the first three quarters of 2016, it added just five million new daily users in the fourth quarter, the slowest quarter-over-quarter user growth it saw in two years, according to its pre-IPO filing. Today’s additional eight million users doesn’t exactly represent a strong rebound.

Based on these numbers, Snap’s struggle looks a lot like Twitter’s, which faced stagnant user growth over several consecutive quarters, making no shareholders happy. For investors in social media companies, the time always seems ripe to ask: Has the network reached its limits? Is the problem simply that no more new users will get Snap, the way so many just didn’t get Twitter?

But those concerns don’t quite capture how well Snap may be positioned to capture more fundamental changes in the online advertising market in the years to come. Spending on digital advertising as a whole just surpassed television for the first time—$72.5 billion in the US in 2016, compared to TV’s $71.3 billion. “There is a structural shift away from TV advertising dollars to the internet,” says Christos Charalambous, a senior strategist at Edge Wealth Management and a Snap shareholder. At the same time, Snap as a medium offers TV-like qualities that could attract ad dollars from both pots of money.

“Similar to television, Snap is an infinitely better platform than Facebook and Google for building brands,” says Jason Kint, CEO of publishing industry trade group Digital Content Next. “Facebook and Google’s duopoly is built off their data collection and direct marketing.” As such, Kint sees Google and Facebook ad formats as more competitive to classified ads or direct mail.

What’s more, Snap is reportedly developing TV-like original content for its most engaged users. And media companies have scrambled to participate in its Discover section, a place in Snap’s app for publishing original stories (WIRED is one of them).Some publishers may even be making money on Snap, which could attract even more high-quality content to the platform. “Snap has done a masterful job of protecting the quality of the brands inside of Discover,” says Kint. “They understand and act like a media company unlike the engineers up north.”

That willingness to be meticulous about quality and to be held accountable for the content that lives on its platform could set Snap apart from its larger, far more successful rivals. For so long, tech companies have dodged calling themselves media companies to avoid the responsibility of acting as an arbiter of content, perhaps in part out of the fear that quality control could stunt growth. Whatever happens to Snap shares tomorrow, the company may ultimately offer a case study in whether that assumption turns out to be right.

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