Why the social media small fry find it so hard to grow into big fish
Nothing stands still for long in the fast-moving world of social media. Just ask Twitter, or Snap, owner of Snapchat. Once upon a time – only eight months ago in the case of Snap – these were musthave investments at flotation.
The investment bankers whipped up the excitement. The world agreed that the valuations looked rich but, hey, this was a chance to own a slice of a business that could be the next Facebook or Google. The shares flew out of the traps. Snap, priced a $17 a pop, hit $27 almost immediately. Twitter, whose IPO in late 2013 was pitched at $26, reached $69 at the start of 2014.
Look at them now. Snap has drifted close to $12 after yet more disappointing figures. New users are arriving at a “lower rate than we would have liked”, conceded co-founder Evan Spiegel.
Over at Twitter, the shares have recovered ground since lows this summer but are still below the IPO price, at $20. And it, too, is trying new tricks. The original 140-character limit on tweets is being increased to 280, infuriating some users and pleasing others.
If there’s a common explanation for their woes, it’s that Snap and Twitter are corporate minnows with niche products compared with Facebook and Google. Advertisers follow eyeballs religiously, and the arrival of automation to sell advertising reinforces the process and drives rate down.
It’s easy to forget just how small Snap is. A daily average user base of 178 million sounds enormous until you see quarterly revenues of just $208m. Net losses tripled to $443m in the latest period. At least revenue is still growing at Snap: for Twitter, third-quarter revenues were down 4% to $590m. On the other hand, the company is at least close to making a profit, unlike Snap.
It all feels like splashing around in the shallows while Facebook makes the social media waves. Twitter has 330 million monthly average users, whereas Facebook has 2 billion. Investors are belatedly getting the message: sometimes Goliath wins.