Kylie Jenner noted her dwindling use of Snapchat with the words: “ugh this is so sad”. The model and reality TV star is not alone. Daily active users fell by 3m in the last quarter. Shares in Snap have gone the same way. At a new low of less than $10, the stock trades at a painful discount to last year’s $17 IPO price.
Ms Jenner’s lament earlier this year highlighted the problems of a social media platform sold to investors on the promise of fast growth. Instagram’s cloning of Snapchat’s distinctive features means its disappearing stories and bunny-face filters are no longer unique. Snap cannot compete with Instagram’s reach, either. Follower numbers are not regularly published but Ms Jenner said she had 10m followers on Snapchat two years ago. Her Instagram following is more than 114m.
US group Snap has tried to reassure investors by offering its first revenue projection — forecasting growth of about 29-37 per cent in the next quarter. This is fine, but it is unlikely to outrun the company’s costs. Negative free cash flow of $234m in the second quarter was $5m more than the same period last year.
Snap still has $1.6bn in cash, but it is being run down by the company’s focus on its video camera-equipped “Spectacles”. This is a long-term bet. The number of consumers keen to wear tech hardware on their face may turn out to be modest.
Losing chief strategy officer Imran Khan shortly after the chief financial officer left looks ominous. Bringing in new sales boss Kristen O’Hara, formerly at Time Warner and WPP, and renaming her division “Business Solutions” is a worthwhile plan to present a more seasoned company to advertisers. And Snap can still boast more popularity with teens and tweens than older social media rivals, according to data company eMarketer.
Those users are worth less and less to investors. When Snap went public its valuation was equal to about $90 per daily active user. At the current $12.5bn market capitalisation it is equal to just $66 per user. A slight lift in advertising revenue in the third quarter will not turn that round.
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