The competition for the precious ad dollars and user engagement that marks the social media industry grew a little bit tougher for embattled media platform Snap as its latest third-quarter reports indicate a large decline in user numbers in what can only be a worrying sign for the company.
Naturally, this news had a depressing effect on the value of Snap shares, sending them to new lows as Wall Street’s confidence in the company’s efforts to reverse the narrative wanes.
Snap’s rocky road ahead – a cautionary tale for the industry
Nonetheless, not all of the news was gloomy for Snap. Even though it is losing users, those that are sticking around are contributing to a growing bottom line and cash flow is looking good for the future.
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Earning $298 million in revenue versus Street expectations of $283 million, Snap seems poised to weather the short decline in total user numbers but, sadly, the stock was not buoyed by these improved revenue numbers.
Debuting at a high of $24, Snap is now trading for sub-$7 levels and, even though losses are declining as revenue is growing, some are skeptical that it will be enough to make the firm a sustainable venture for the long haul.
The Future of Snapchat
Discussing the recent earnings reports and user decline, CEO Evan Spiegel said, “While we have incredible reach among our core demographic of 13- to 34-year-olds in the US and Europe, there are billions of people worldwide who do not yet use Snapchat.” Further, he attributed the loss in users to the app’s decreased performance on many Android phones. In terms of goals for the company, Spiegel hopes to bring even this year and reach profitability by the end of next year.
CFO Tim Stone added, “Looking forward to 2019, our internal stretch output goal will be an acceleration of revenue growth and a full year free cash flow and profitability. Bear in mind that an internal stretch goal is not a forecast, and it’s not guidance.”
Pressured on user engagement metrics, Spiegel maintained that they had largely held up even in the face of the decline in the total number of users. He pointed to efforts to expand Snap’s base beyond its current audience in the US and Europe as well as more aggressively positioning Snap in the developing world as ways forward to profitability.
TechCrunch, for their part, sees a tough road ahead for Snap who faces competition from Facebook and its suite of services, many of which have already made inroads into the developing world where Spiegel sees Snap’s greatest future growth potential.
What Went Wrong With Snap?
Reddit users, for their part, were pretty unequivocal in their evaluation of Spiegel’s leadership at Snap, with user Interesting Alarm commenting that, “They should’ve sold for 3 billion,” in reference to Facebook’s attempted buyout of the company, which was spurned in a very public manner by Spiegel.
As a user pointed out to InterestingAlarm that the company raised more than that in its initial public offering (IPO), but this argument was debunked with the explanation that, “Nope. Snapchat, not the founders, raised $3.4B in company cash. Founders still own about $3.5 B in the stock of a company that’s tanking. They can’t sell that much so they def should have sold out.”
One thing is certain: The social media industry is an extremely competitive segment and momentum seems to rule the day. It remains to be seen if Snap can regain its mojo, but the prognosis from the anecdotal evidence provided by Reddit does not paint a good picture.
