Snapchat — The Rise and Fall and Rise Again
I was about to introduce Snapchat as a messaging app. But since it portrays itself to be a camera company, let’s call it that for a second. So, Snapchat is a camera company that does not produce cameras per se. The main feature of their camera app is sending pictures and messages that are ephemeral in nature.
Snapchat started under the name Picaboo in 2011. Initially, Reggie Brown pitched the ephemeral concept to Evan Spiegel who brought in Bobby Murphy to code the app. Brown was the one who designed Snapchat’s logo, named Ghostface Chillah, inspired from the hip-hop group Wu-Tang Clan. Unfortunately, Brown was later forced out of the company, at which point the company was renamed to Snapchat.
Facebook had acquired Instagram for 1 billion dollars in 2012. But Snapchat was amassing users so quickly that it caught the eye of Facebook. Thus, Facebook reportedly offered to acquire Snapchat for 3 billion dollars, which Spiegel rejected immediately. And it seems that Instagram was repurposed to essentially become a Snapchat killer. It could incorporate nearly all features that Snapchat introduced. For example, Instagram introduced Instagram Stories, a feature that was copied from Snapchat’s Stories.
Snapchat took a quick detour in the financial space and introduced Snapcash in 2014. It was a feature that allowed users to send and receive money through the app. However, there were already well-established players in the space. Think about Venmo, PayPal and Square. And it seemed that mixing a social messaging app with finances did not blend well. Thus, Snapcash ceased to operate in 2018.
Snapchat was still acquiring users at a fast pace. Daily active users averaged 158 million by end of 2016. The user base consisted mostly of people in the 18 to 34-year-old age group. But they were getting a higher engagement from users under 25. These users visited Snapchat over 25 times a day for a total of over 30 minutes. Snapchat pointed out that this user base was less brand loyal and had plans to diversify it in the near future.
Snapchat renamed to Snap in September 2016. This coincided with the company’s dive into hardware products a few months later. Snap introduced Spectacles, smart glasses that allow users to record videos of up to 10 seconds. Snap generated a huge hype around Spectacles but once users actually tried them, they were quickly forgotten. The glasses only worked with Snap’s app, which was a letdown for most people. But Snap kept working on the Spectacles by giving it some upgrades over the years.
Snap filed for an IPO in March 2017, raising over 3 billion dollars at a valuation of around 20 billion dollars. Share price immediately rallied, giving the company a valuation of 33 billion dollars at the end of the trading day. Investors hoped that Snap was the next Facebook. But Facebook was already profitable at its IPO date, generating over a billion dollars in profit. Snap was the complete opposite. Its losses widened to 3.4 billion dollars in 2017. Moreover, Facebook essentially did not have direct social media competitors. It did not have to compete for user engagement and active users. Snap came in at a time where it has to fight the likes of Instagram, Whatsapp and Twitter for user time.
At the end of 2017, Snap announced a redesign that was so controversial that over 1 million people signed a petition to remove the update. Apparently, when Kylie Jenner tweeted about ditching Snap, the stock lost 6%, or 1.3 billion dollars in market value.
2017 was definitely not a good year for Snap investors. Revenue was growing below expectations reflecting the slow increase in average daily active users. Instagram was amassing users at a much faster clip. It seemed to be the bane of Snap. The stock price was down by more than 45% since its peak in 2017. But that was not the bottom.
By end of 2018, the stock price was down 60% since its IPO. Competition from Instagram coupled with user’s frustration with the app redesign led Snap to lose active users. In turn, they had a hard time attracting advertisers to the platform. Revenue per active user was rising, but that did not mean much if they started losing active users. Moreover, they were caught up in the sell off of social media stocks after Facebook and Twitter faced scrutiny from the U.S. government over election matters.
2019 proved to be a better year, with the stock price rising by 180%. Investors’ confidence was boosted by the metrics Snap posted. Average revenue per user was not only rising but it was also accompanied by a rise in daily active users. By end of 2019, there was an average of 218 million daily active users.
Moreover, Snap introduced new features that generated avenues for monetization opportunities. They announced an ad-supported gaming platform and an audience network that will allow Snap to place ads in third-party apps.
Snap was also rolling out the redesigned Android app, which was designed to capture more customers outside the U.S. They even introduced Snap Originals, scripted TV shows made only for Snapchat, to retain the younger audience. Advertizers also appreciated Snap’s improved campaign analytics and change in content distribution on the platform.
Snap has indeed made a comeback lately. But can it sustain its growth to achieve profitability? Or is it on a downtrend once again? I personally do not use Snapchat. Do you use the app? Is it worth your time? How is it compared to Instagram? As always, let us know.
