Shares in the parent of Snapchat tumbled to a new low on Wednesday as Wall Street’s hopes of it one day becoming a significant force in social media took a serious dent.
Signs that the disappearing message app’s audience has dipped in recent weeks wiped more than 20 per cent from the Snap share price in morning trading in New York, pushing it below $11 for the first time.
Fading confidence in Snapchat’s ability to reach far beyond its core teenage audience has wiped off nearly half its value in the past three months, or about $12bn.
That company’s latest problems owe much to a redesign that Evan Spiegel, Snap’s chief executive, hoped would steal a march on Facebook at a time when the bigger social network was facing a spate of problems. Mr Spiegel split Snapchat’s news feed in two, separating personal communications from other types of content, in a move that he predicted would deal with the fake news and “filter bubble” problems that have hit Facebook.
The move backfired, however, with celebrities who used the app complaining about being shut out of their fans’ personal feeds and strong user and advertiser growth from late last year slowing or reversing.
The company disclosed late on Tuesday that its daily visitor count fell in March, slipping below the 191m average for the first quarter as a whole — though it was still above the average of 187m in the fourth quarter of last year.
The latest figures have reinforced the view that Snap is destined to remain only a “niche platform” in social media, said Brian Wieser, an analyst at Pivotal Research. He said the company’s “reasonably dedicated” base of young users, along with recent moves to appeal more to advertisers, were likely to give it staying power but the chances of it breaking out to become a significant online platform were fading.
“They’re definitely in a position where user growth is slowing, particularly in the US, which is an important market,” said Debra Williamson, an analyst at eMarketer.
She added that the company had been slow to adjust the new design after complaints but that it was too early to judge what the long-term impact on audience growth would be.
The redesign hit revenues in the first quarter and would cause second-quarter growth to “decelerate substantially” from the first quarter, the company warned on Tuesday.
Snap executives said they were confident in the company’s prospects in the second half of this year, when tweaks to the redesign and a series of other new product initiatives would have taken effect.
First-quarter revenues compared with analyst forecasts of $244m
However, the company is coming under pressure from rivals, with Instagram pushing further into Snap’s territory on Tuesday. The Facebook-owned photo sharing app announced it would open up to allow developers to create more augmented reality experiences, such as face filters — a technology pioneered by Snapchat. After Instagram copied Snap’s stories product, it garnered more users than on Snapchat itself.
Mr Spiegel said this week that the company was seeing “early signs of stabilisation” among users of Apple devices after the recent fall-off, though it still had a “a lot of work to do to optimise the new design, especially for our Android users”. In an effort to overcome the audience backlash, Snap began testing a new design with iPhone users last week.
Jim Cridlin, head of innovation at advertising group’s WPP’s Mindshare business, called the setback “unfortunate” after recent headway in wooing advertisers with elements such as an automated buying platform.
Wall Street had been braced for bad news. Snap’s shares jumped 48 per cent on the day after its last earnings report but had given up those gains before Tuesday’s earnings as worries crept back in about whether it could maintain its strong momentum from the fourth quarter.
There are also fears that new privacy regulations taking effect in Europe this month will cut into Snapchat’s base of young users, though it has said that it will continue to offer its service to the under-16s, unlike Facebook’s WhatsApp service.
Despite the setback, in the latest quarter, some analysts pointed to continued growth in the company’s programmatic ads business, launched last year to reach a new base of smaller advertisers, as a sign that Snap was building a more solid foundation for its business. “Their strategy for attracting the ‘long tail’ [of advertisers] is working,” said Melissa Parrish, an analyst at Forrester.
Snap reported revenues of $231m for the first quarter, below stock market expectations of $244m, despite growth of 54 per cent from the previous year. Following recent cost-cutting, it held its net loss to 30 cents a share, or 17 cents on the pro forma basis Wall Street uses, in line with analyst expectations.
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