Snap’s Struggles Are Becoming Quite a Spectacle
Before Snap’s IPO in March, it looked like the company could validate CEO Evan Spiegel’s vision as the next evolution in how people communicate—ephemeral, visual, instantaneous, and intimate.
Tuesday, Spiegel said the vision needs some adjustment. He jolted investors with news that the company is redesigning its signature Snapchat app and acknowledged, “[W]e don’t yet know how the behavior of our community will change” as a result.
The surprise announcement continued what has been a rough year for the one-time darling. Rival Facebook continues to mimic some of its most popular features. Snap reported disappointing third-quarter financial results Tuesday, with fewer users and less revenue than analysts had expected. It also took a $40 million financial hit for millions of unsold pairs of its Spectacles augmented-reality glasses.
Details on the redesigned app were scant. Spiegel told analysts the goal is to make it easier to use, particularly for people using Android phones, those older than 34, and people outside the US and Western Europe. Not long ago, the app’s inscrutability to many adults was viewed as an asset. Spiegel said the new plan is to surface more of “the vast quantity of content on our platform that goes undiscovered or unseen every day,” in a more personalized way.
The change is a risk, he said, adding, “We’re willing to take that risk for what we believe are substantial long-term benefits to our business.” He pointed back to Snap’s introduction of Stories in 2013. He said the feature had few users in its first six months, so Snap has learned “not to be fearful of making big product changes.”
Analysts were skeptical, questioning whether the redesign would disrupt “the best-friend engagement” that Snap has historically pitched as a big advantage. Snap has always shrugged off comparisons to Facebook, which have only intensified since Instagram got truckloads of traffic by copying Snap’s Stories feature. But the redesign sounds so much like conventional social media that one analyst asked if Snap should consider adding a news feed.
Snap shares fell 17 percent in after-hours trading after the results were announced, sending shares far below the $17 IPO price. The company said the average amount it collected for an ad fell 60 percent year-over-year after the company moved to a self-serve auction system for programmatic advertising. Snap’s chief strategy officer, Imran Khan explained that before the auction approach, advertisers had to commit a couple of hundred thousand dollars to a Snap campaign, which inhibited small and medium sized businesses from testing it out. Revenue from those businesses has tripled, he said.
Spiegel has historically taken a blase attitude to investors’ concerns, but that standoffishness does not appear to be paying off. Snap blamed lower-than-expected daily active user numbers on seasonality and the fact that user numbers are reported as average of the quarters, but Snap itself chose the metric.
Spiegel repeatedly stressed that Snap now reaches 70% of the 13 to 34-year-old population in developed world markets like the US, France, UK, and Australia, an audience he called “the tip of the spear that drives broader adoption trends across the technology ecosystem.” But Spiegel failed to connect the dots between this dream demographic of users and a redesign that might alienate them.
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