Ris­ing In­sta­gram users caus­ing fall in Snapchat num­bers


Face­book once failed to buy Snapchat; ever since, it's tried to copy it, mostly with­out suc­cess.

Un­til now. Face­book's In­sta­gram Sto­ries, a clear Snapchat clone, has more daily users than Snapchat it­self - and par­ent com­pany Snap Inc. should be very wor­ried.

Snap's lat­est earn­ings re­port isn't help­ing ei­ther. On Thurs­day, the com­pany said user growth for the April-June pe­riod was a pal­try 4% from the pre­vi­ous quar­ter.

Snap's stock, al­ready down 44% since its ini­tial pub­lic of­fer­ing in May, de­clined 14%, to $11.90, in ex­tended trad­ing after the re­sults came out. That's less than half of the $24.48 clos­ing price on its first trad­ing day.

While the doom doesn't spell im­mi­nent death, it's a sign that Snapchat could be rel­e­gated to the side­lines as a niche app for young peo­ple - or worse, a pass­ing fad - rather than a ma­jor com­peti­tor for dig­i­tal ad dol­lars like Face­book and yes, even the strug­gling Twitter.

An an­a­lyst for Morgan Stan­ley, the lead un­der­writer for Snap's IPO, re­cently cut his rating of the com­pany's stock, cit­ing com­pe­ti­tion from In­sta­gram and wor­ries that Snap's ad­ver­tis­ing of­fer­ings aren't evolv­ing or im­prov­ing. The an­a­lyst, Brian Nowak, said the com­pany needs to do more so that ad­ver­tis­ers don't see it as a mere ex­per­i­ment, but a se­ri­ous player. BY THE NUM­BERS

In­sta­gram re­cently dis­closed that Sto­ries, which lets peo­ple share videos and snap­shots in a con­tin­u­ous 24-hour loop, has amassed 250 mil­lion daily users in the year since it launched.

Snapchat, in com­par­i­son, had 173 mil­lion in the sec­ond quar­ter - and that's all of Snapchat, not just its ver­sion of Sto­ries. In­sta­gram in its en­tirety, mean­while, had more than 400 mil­lion daily users as of Fe­bru­ary, the last of­fi­cial count.

Snap said Thurs­day that it lost $443 mil­lion, or 36 cents per share, in the sec­ond quar­ter. That com­pares with a loss of $116 mil­lion, or 14 cents per share, a year ear­lier. Rev­enue grew to $182 mil­lion, more than dou­ble the $72 mil­lion a year ear­lier but be­low an­a­lysts' ex­pec­ta­tions. TO GROW OR NOT TO GROW

"Face­book has proven them­selves to be a fierce com­peti­tor," Gart­ner an­a­lyst Brian Blau said. Face­book, he added, un­der­stands how to get more and more peo­ple to sign up and keep us­ing its ser­vices.

Snap CEO Evan Spiegel has long de­fended the com­pany's de­ci­sion not to make user growth its pri­mary mis­sion. He doesn't even like call­ing Snapchat a so­cial net­work; he in­sists it's a cam­era com­pany.

"There's a lot of this thing in our in­dus­try called growth hack­ing, where you send a lot of push no­ti­fi­ca­tions to users or you try to get them to do things that might be un­nat­u­ral or some­thing like that," Spie- gel told in­vestors in May.

Although that's an easy way to grow daily users quickly, Spiegel said, Snap doesn't be­lieve "those sorts of tech­niques are very sus­tain­able over the longterm."

Face­book sends no­ti­fi­ca­tions for all sorts of things, such as a friend do­ing a live video or an­other friend post­ing some­thing after an ex­tended ab­sence. An­other might be on a new item for sale in the ser­vice's "mar­ket­place" sec­tion. These no­ti­fi­ca­tions - which pri­mar­ily ap­pear in the Face­book app but can also be pushed to the phone's home screen - can con­ceiv­ably keep peo­ple re­turn­ing day after day.

While Snapchat sends fewer no­ti­fi­ca­tions, it en­cour­ages daily use through Snap­streak, which calls out streaks in which two friends send each other snaps at least once for more than three con­sec­u­tive days. But it isn't work­ing too well, as daily use hasn't grown much. RI­VALS UPON RI­VALS

Ri­vals don't al­ways suc­ceed. Face­book re­cently shut down Lifestage, which lets those 21 and un­der share pho­tos, self­ies and videos with class­mates. Lifestage was aimed at high school­ers - a big chunk of Snapchat's au­di­ence.

Be­fore that, Face­book killed Sling­shot, an­other Snapchat clone for send­ing dis­ap­pear­ing mes­sages. In turn, that fol­lowed the demise of Poke, which also let peo­ple send pho­tos and videos. All that fol­lowed Snapchat's de­ci­sion to re­buff Face­book's $3 bil­lion of­fer for the ser­vice in 2013.

But Face­book and others kept try­ing and try­ing, un­til Face­book suc­ceeded with In­sta­gram Sto­ries. Easy to use and pig­gy­back­ing on In­sta­gram's ex­ist­ing pop­u­lar­ity, Sto­ries ex­panded Snapchat's idea to a broader range of users. While Snapchat's au­di­ence is mostly teens and young peo­ple, on In­sta­gram, any­one might send a "story."

It sig­nals that even as Snapchat plays down user growth, hav­ing a strong and broad user base can be cru­cial to suc­cess.

Other mes­sag­ing apps are look­ing to clone Snapchat, too. Google is re­port­edly work­ing on Stamp, which The Wall Street Jour­nal com­pared to Snapchat's Dis­cover fea­ture for let­ting peo­ple find photo and video-heavy news items. While Google isn't com­ment­ing on Stamp, pub­lished re­ports say the com­pany is in talks with the likes of Vox Me­dia and Time Inc. to cre­ate such con­tent. BE­YOND USER GROWTH

In­vestors in Face­book, Twitter and now Snap care tremen­dously about user growth. Face­book, with its 2 bil­lion users, is en­joy­ing record-high stock prices. Twitter, with its growth barely budg­ing, is not.

But Blau said growth doesn't nec­es­sar­ily have to be Snap's pri­mary fo­cus if the com­pany is able to make money from the users it does at­tract.

On this front, the com­pany has made some strides, eMar­keter an­a­lyst De­bra Aho Wil­liamson said. For ex­am­ple, it has launched new tools for busi­nesses to cre­ate and dis­trib­ute ads on the app.

These, she wrote in an email, "will help bring in new ad dol­lars, par­tic­u­larly from small and mid­size mar­keters." But, Wil­liamson said Snap must do even more - so ad­ver­tis­ing on it is no longer just an ex­per­i­ment.

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