Snap revamps app to draw users after sluggish growth
Rrevenue at US$208mil, falls short of US$236mil predicted
SAN FRANCISCO: Snap Inc still isn’t meeting much-lowered projections for growth. Now the company is taking drastic measures to shape its future.
While ad prices fell as part of a transition in the company’s sales system, the larger problem, Snap said, is that people complained they didn’t know how to use the Snapchat mobile-messaging app.
Once part of the app’s allure for teens, the company now considers its mystery a hurdle to future growth. So Snapchat is being redesigned.
“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behaviour of our community will change when they begin to use our updated application,” chief executive officer Evan Spiegel said in his prepared remarks to investors.
“We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
As part of the overhaul, Snapchat is building an algorithm to show people a personalised version of the stories they might want to see. Spiegel didn’t give many details, except to say that the intimate nature of Snapchat – conversations between close friends – would be preserved, even as it becomes easier for those users to see content from those who aren’t their friends.
The move would help Snap and its media partners make more money from ads on curated content.
Snap said third-quarter revenue was US$207.9mil, falling short of the US$235.5mil analysts predicted. Daily users averaged 178 million, less than the 180.5 million estimate of analysts surveyed by Bloomberg.
Shares tumbled as much as 22% in extended trading yesterday, before recovering to trade down 17%.
Sales estimates for Snap have been declin- ing since its March initial public offering (IPO). The Los Angeles-based company is working to prove it can build a successful business and keep adding users at a healthy pace, no matter what Facebook Inc does to copy its most popular features.
Snapchat, which lets people send photo and video messages that disappear, is also competing in an advertising market where Facebook and Alphabet Inc’s Google nab the majority of new spending.
The shares have dropped more than 10% since the IPO amid concern about slowing user growth and questions about the company’s advertising business.
Spiegel, who prefers to be secretive about his plans, said last month he realised he needed to communicate his strategy more clearly. If he could do that, quarterly results matter less, said Brian Wieser, an analyst at Pivotal Research.
“What really matters is what gives us some confidence in the long-term revenue opportunity,” Wieser said. “The more they tell us to help us understand the business, the happier their investors will be.”
Snap’s shares fell to a low of US$11.78 in extended trading after closing at US$15.12 in New York yesterday. The company went public at US$17 a share.
Disappointing results since the IPO have caused optimism to wane. Analysts six months ago thought Snap could generate more than US$1bil in revenue this year. Now, they expect US$871.3mil.
The net loss in the third quarter widened to US$443.2mil, or 36 cents a share, Snap said in a statement on Tuesday. Excluding certain items, the loss was 14 cents a share, in line with an average analyst estimate of 15 cents.
The after-market stock decline wiped out about US$1bil from the combined net worth of co-founders Spiegel and Bobby Murphy, leaving both with a net worth of about US$2.6bil, according to data compiled by the Bloomberg Billionaires Index.
It has taken some time for advertisers to understand how Snapchat works. The company’s sales force has had to explain that it doesn’t operate like a social network – there is no sharing, liking or commenting on people’s posts, and no news feed. The content from friends is displayed separately from professionally produced news from media organisations such as CNN and ESPN, where Snap shares revenue on ads.
Snap also makes money off of branded ways people can edit their photos – turning their faces into animated Taco Bell tacos, for example, before sending them to friends.
Snap said the price per ad fell 60% as part of a transition to an auction-based ad-selling system – something the company said would be fixed over time as more advertisers bid.
Some marketers still consider Snap an experiment. The company’s self-service advertising system has made spending there easier, with 80% of ad impressions now delivered through the system, even if it caused prices to fall.
“The speed of this transition surpassed our expectations, but has dramatically reduced pricing as advertisers move from direct sales to our unreserved auction,” Spiegel said in his remarks.
There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term. Evan Spiegel