When Facebook recently reported a slowdown in growth, its share price dropped 20%, while Twitter has been battling growth concerns for the last few years, which have dragged down the company’s valuation.
Given this, the latest earnings report from Snap Inc. does not paint a good picture for the company. After going public only 17 months ago, the camera company has posted a decline in active users, dropping from 191 million daily actives last quarter to 188 million today.
That’s not good news – Snap’s growth momentum was a key strength, the app’s key value proposition being that it has (or had) a strong, and growing, hold on younger audiences who were turning away from Facebook. Now, even with Facebook data controversies regularly dominating the headlines - when you’d think users would be most actively seeking alternatives - Snap is actually seeing less use.
In terms of why the app isn’t being used as much, its controversial redesign is being blamed as the main culprit, with Snap pointing the finger at unpopular changes which they’ve been working to resolve. But of course, the larger narrative here is that Facebook – mostly via Instagram Stories – has taken the wind out of Snapchat’s sails, and has now effectively nullified the app’s momentum. It’s impossible to know which is more true, but definitely Snap’s redesign stumble came at the worst possible time.
But it’s not all bad news for Snap. The company also reported a 44% year-on-year revenue increase, and a 48% YoY jump in ad revenue.
Snap’s losses are also decreasing, and the overall improved revenue position saw the company’s shares rise following the report. And while longer term, growth remains a critical concern, Snap also tried to counter the negative storyline by noting that monthly active usage in the US and Canada is on the rise. But much like the brackets on the top graphs, this does seem like a ‘’look over here, not over there” tactic, which likely won’t hold weight with investors.
One of Snap’s key issues also remains – the challenge of actually monetizing its usage.
Looking at Snap’s Average Revenue per User chart, you can see that there are still some issues on this front.
As we’ve noted previously, Snapchat itself has long touted engagement as its biggest strength - in a report from earlier this year, which compared the platform to Facebook and Instagram, Snap noted that its app sees far more engagement among younger users, with daily active Snapchatters spending over 30 minutes per day in app.
And while few would debate Snap’s hold on younger audiences, the problem, from a business perspective, is that Snap still needs to show how that engagement translates to actual brand benefit. As you can see, the ARPU are not increasing at any significant rate – except in the ‘Rest of World’ category, where Snap saw a decline of a million active users.
So it’s not looking great, it’s not a strong performance report from Snap Inc. But it was enough to inspire this:
As reported by TechCrunch, the Saudi Royal Family has invested $250 million in the app. Could that lead to a change in direction, a change in focus on international markets? Maybe new opportunities Snap has not previously considered.
It’s difficult to see what Snap’s future may be at this stage, but one thing is clear – Facebook now owns Stories.
And Snap needs to find a new trick.