Analytical Report of Snapchat Inc.

Executive Summary

Snapchat is a social networking and photo messaging application created by former Stanford University students Evan Spiegel, Bobby Murphy, and Reggie Brown. The app’s feature of storing “stories” of 24 hours of chronological content played a huge role in its popularity. As of February 2018, the app has over 187 million daily active users.

In August of 2018, stock prices of Snapchat’s parent company, Snap Inc., had dropped 13% due to losing about 3 million daily active users the company’s second quarter. This includes over 1 million users in North America alone, which is the company’s most important market. This loss in users equates to almost 70% of revenue in the quarter. [pic 1]

This report will analyze and explain the driving forces behind the decline of Snapchat users and a reduction in stock pricing. It will also provide solutions to the issues later presented in this report.

Alexander Dao

alexander.dao@sjsu.edu 

009855794

Introduction

Purpose

To understand the reason why Snap Inc. stock prices has plummeted and provide solutions for future growth and recovery

Background

Snap Inc. had reported a huge drop in users and a drop in share prices after hardships such as a controversial redesign of their mobile app, pressure from competition, and internal issues.

Sources and Methods

Information and data used in this report had been gathered from scholarly articles as well as news articles from credible sources and publishers

Scope

The analysis of the aforementioned issue will cover the main factors leading up to the issue faced by Snap Inc. It will also provide some solutions, sourced from articles written by industry professionals, on how to mediate and recover lost revenue and regrow the company’s user base.

Snapchat’s Controversial Redesign

In November of 2017, Snap Inc., Snapchat’s parent company released a dramatic redesign of its mobile photo sharing application and was intended to combat slow growth. However, as the new update reached all of the app’s users, sales and revenue slowed even more after the company’s users voiced a huge displeasure over the new design. New user additions also stifled in the wake of their decision. he new "Friends" page compacts Snapchats messages and Stories and has no chronological order. The “Sent” page makes finding and sending messages to friends even harder and rewatching stories involves much more effort and takes longer.

Snap Inc.’s CEO, Evan Spiegel, claims that while the update has cause disruptions in the short term, it is necessary in order to provide for Snap’s business in the future. However, two quarters after the initial update, his argument holds little weight as Snap Inc. is still struggling to increase growth in it’s user base. According to an article written by Sarah Frier, a writer for TIME, revenue gains in May of 2018 will expect to drop even further, which sent shares dropping as much as 20 percent.^[1] Spiegel claims that the new update is rooted in his belief that messages and posts from friends and family should be separate from those of strangers, celebrities, and companies. He believes that mixing these messages “makes real relationships less intimate.”^[2] 

Why Snapchat Users Are So Upset

The new redesign mixes “Stories” (photos and videos visible to friends that disappear after 24 hours) and incoming “Snapchats” (conversations with friends) on a single “Friends” page. Though incoming Snapchats have priority and appear at the top of the page, stories and snapchats look the same and are no longer in chronological order. Snapchat has instead inputted an algorithm that displays stories from friends that it believes you care about the most.^[3] Users are reporting that the new design is too busy and makes finding friends harder, when compared to the list format Snapchat originally had for years.

In addition to confusing and hard to use Friends page, previously watched stories seem to disappear after watching them once. Before the update, stories used to be available to rewatch on the “Stories” page until they disappeared after the 24 hour time limit. In order to rewatch a story on the new update, users now have to swipe up and search for a friend’s name.

Furthermore, the “Discover” had previously allowed users to swipe left and find stories. Now, this page is filled with sponsored contents and celebrity snapchat stories. This redesign was intended to make Snapchat more advertisement friendly and increase ad revenue; however, it has had an outcome opposite than what the developers intended. Users who want to avoid ads can just ignore the “Discover” page all together, working in opposition to what Snapchat wants.

Negative Effects In The Wake Of Snap’s Redesign.

According to data compiled by Bloomberg, in Snapchat’s earnings report in May 2018, the company stated that daily active users reached 191 million in the first quarter, which missed the 194.3 million estimate made by analysts. Revenue was also below estimates after Snapchat reported $230.7 million, which was below the prediction of $244.9 million.^[4] 

The company has had much trouble trying to sustain momentum as the company provided a lot of change and uncertainty for investors who expected steady growth. In over a few months, the company had lost several executives and had laid off 7% of employees during a reorganization process. As of May 2018, Snap stock prices fell to $11.50 during extended trading and earlier fell 1.4% to $14.13 at the close of trading.

Four Other Reasons Why Snap’s Stock Price Is Declining

According to an article written by Kurt Wagner and Rani Molla, journalists for recode.com, Snap’s slow growth and decline in stock prices is not just about the redesign. They listed out 4 reasons as to why the company is performing so poorly in addition to the backlash from its unpopular update. [pic 2]

Snap’s Business Growth Is Slower Than Expected

As of Sept 2018, Snap’s stock price reached an all time low, trading at just under $10, which is more than 60% below the company’s stock price on its first day of trading just over a year and a half ago.^[5] Currently, in October of 2018, Snap’s stocks are trading at $6.43 per share. Snap has admitted that attracting advertisers to its mobile platform has been slow. The company sells most of its ads through a bidding process, where ad space is sold to the highest bidder. Snap would need more advertiser in order to increase biddings for ad space. More advertisers would equate to more bids, leading to higher advertisement prices and an increase of revenue for the company.