Has Snapchat Peaked Already?

By @TheMarkDalton

Just over a year ago I jumped on Snapchat along with many other influencers and brands at the time, why? Snapchat growth was seriously rocketing this time last year and the platform appeared to be on the verge of exploding. Anyone who followed me on Snapchat at the time (and thank you to all of you who did follow) will know that I rarely post any snaps at all now.

Honestly, I would probably still be hustling on Snapchat and the platform would probably have indeed exploded at this point if is was not for Instagram stories. When Instagram revealed their stories platform they were blasted for copying Snapchat but I have fallen in love with what Instagram are doing over the past few months.

It feels like a more full and rounded experience, Instagram has surpassed Snapchat in daily users in just a few months. WhatsApp has also surpassed Snapchat in just 10 weeks and for me that was more than enough to go where the attention is and to work harder on Instagram.

In recent months Snapchat has come under a parent company called Snap and has been taken public. Wednesday 10th May was the first time they released their earnings as a public company and it was as bad as many expected it to be.

User growth

Snapchat now has 166 million daily active users which means they have added just 8 million in the last three months. While 8 million in three months is not a bad turnout in the grand scheme of things, it is a very significant slow down in the growth rate of the app.

We know from watching Twitter over the past number of years that Wall Street puts a heavy emphasis on user numbers and how fast the platform is growing. Once a platform stops growing investors start piling on the pressure.

For context, Twitter added more users than Snapchat in the last quarter. Twitter added 9 million users, Snapchat managed 8 million but Instagram is the clear winner adding 100 million users in just four months. Snap tried to address concerns by showing engagement metrics which indicated 3 billion daily snaps on the platform but like we have just pointed out, growth is a key concern when you are in the market and the market responded accordingly. Following the quarterly results shares fell almost 25% in after hours trading. Shares have recovered and rallied in recent days but user growth is still going to be the big area of concern.

When you break down the numbers they look even worse with a growth of three million in North America and Europe. The other two million users were spread out across the world. If Facebook is smart over the coming months and leverages their success with stories on Instagram the right way then they could really stick it to Snapchat and make life even tougher for them in the future.

What about the money?

We know that Twitter has struggled to monetise their product for years now, is Snapchat faring any better? At the moment it is hard to tell, Twitter has been trying and failing to crack their advertising model for years now.

Snapchat on the other hand is only really starting their advertising push now but they have seen a jump in expenditure notably in research and development. They are in a tough spot at the moment where investors will no doubt be putting pressure on following the earnings call last week but at the same time they can’t just flood the app with ads. If they give in to that pressure and do it then they will end up driving users away.

They have the potential to fix the money problems in these early stages but the reality is that right now things are not looking good. Like one analyst pointed out on Twitter, they are losing $50 million a month and the user growth in investors eyes is pretty much at zero.

How much pressure will they be under now?

A lot, they are inside the grand playground of Wall Street and like we have seen with Twitter over the past few years, the heat is turned up real fast when it doesn’t go the investors way.

The pressure they are going to be under now will lead to one of two scenarios, they will innovate faster and add more products and tools to benefit users. Or they will make errors under the pressure because they are trying to move so fast and could end up reducing engagement.

At the moment if you are looking to gather attention and reach a larger audience then Instagram is looking like the better option. There is still big potential on the Snapchat platform as a brand or influencer in the short term while questions linger over long term.

Snapchat did warn investors when they first went public that they may never achieve or maintain profitability, however the “I told you so” line doesn’t really work that well when you trade on the market. As recently as March this year, Wall Street analysts were warning people not to buy Snapchat shares at all.

What about Evan Spiegel?

It is too early to tell if he is the right man taking the company forward down the line but for now he is the best to fill the role unless things really start going south, again case in point – Twitter.

At the moment analysts feel as if the whole operation is poorly run however and the reality is that it doesn’t reflect well on the company when the CEO is getting a $750 million bonus for taking them public however they are losing around $50 million each month and growth has flatlined over the past year.

Yesterday he was asked by an analyst: “Does Facebook scare you?” and he laughed at the question. His response was: “At the end of the day, just because Yahoo has a search box, it doesn’t mean they’re Google.”

He would have a point were it not for the fact that Facebook is the much bigger of the two and also the fact that Instagram stories and WhatsApp stories product which are both owned by Facebook, have grown bigger than Snapchat in a mere fraction of the time thanks to the already established communities they have.

Is he in over his head? It is hard to tell to be honest, we are still in early days with regards to Snapchat trading. Maybe he as the vision of where he wants to go and how he wants to get there and we just don’t know it yet. Time will tell, the next few quarters will be a big insight into what direction they are heading.