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Snapchat struggles to curb user exodus

Snapchat continues to lose users in an ongoing backlash to its app redesign and growing com...

Posted: Oct 26, 2018 1:26 PM
Updated: Oct 26, 2018 1:26 PM

Snapchat continues to lose users in an ongoing backlash to its app redesign and growing competition from Instagram.

Snap, the parent company of Snapchat, reported 186 million daily active users for the three months ending in September, a decline of 1% compared to the previous quarter and below analysts' expectations of 187.5 million.

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Evan Spiegel

This is the second time Snapchat has lost daily active users as a public company. Snap (SNAP) went public in March 2017. In the second quarter of this year, the app lost 3 million daily users.

On a call with analysts on Thursday, CEO Evan Spiegel said the daily user decline was primarily among Android users.

"We have been developing a completely new version of our Android application to be lightweight, modular, and performant," he said. "The Android community represents a global growth opportunity for us and we are making good progress testing the application in select markets."

Snap said it expects daily users to decline again sequentially in the fourth quarter.

However, there were some bright spots during the latest quarter. Revenue grew 43% to $298 million, beating analysts' expectations. Snap also reported a loss of 12 cents per share, narrower than Wall Street's projections. The stock initially rose following the report but later fell 12% in extended trading.

The company continues to struggle with heightened competition from Instagram, which has copied many of its most popular features, such as disappearing photos and videos. It's also still navigating backlash to its rocky app redesign. The new interface intended to attract more users amid slow audience growth and criticism the app was too confusing to use. Instead, it was panned by its core younger users.

"Overall, I think it's a win that Snapchat is even in this position after its disastrous redesign earlier this year," said Jessica Liu, senior analyst at research firm Forrester. "Snapchat's biggest issue is it lacks appeal beyond its core user base and has an unclear vision on how to break out beyond the under 30 demographic in a very crowded social media landscape."

In a recent memo to employees obtained by Cheddar, Spiegel acknowledged the company "rushed our redesign, solving one problem but creating many others."

"In our excitement to innovate and bring many new products into the world, we have lost the core of what made Snapchat the fastest way to communicate," Spiegel added.

The company did not immediately respond to a request for comment about the memo.

Snap has also seen an exodus of executives over the past year, including VP of Marketing Steve LaBella and Chief Strategy Officer Imran Khan. Other executives who exited this year include Chief Financial Officer Drew Vollero and VP of product Tom Conrad. The company also hasn't had a chief operating officer since Emily White left the company in 2015.

Earlier this week, Snap announced the hire of two new executives: Jeremi Gorman is joining as chief business officer, overseeing global business solutions, online sales and customer operations; and Jared Grusd will serve as chief strategy officer responsible for partnerships, content and business development.

Despite Snap's challenges, some analysts are striking a more upbeat tone.

"It is not too late for management to find ways to reverse recent usage trends and generally improve monetization regardless of those usage trends. With ongoing experimentation, we have some faith that they should be able to do both," wrote Brian Wieser, an analyst at Pivotal Research, in an investor note ahead of the third quarter report.

He also said Snap could become an attractive candidate to go private at its current stock price.

The company also said more users watching premium content since its redesign "than ever before." In the most recent quarter, 21 of Snapchat's original shows reached a monthly active audience of over 10 million. Earlier this month, it announced new programming, including scripted programs and docuseries produced exclusively for the platform.

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