Snap’s loss widened and user growth of its flagship app did not live up to its CEO’s expectations, as the firm deals with competition from Instagram and plans to build a new version of its Android app “from the ground up”.
Meanwhile, Reuters said that China’s Tencent Holdings had built-up a 12 per cent stake in Snap, it what was seen as a vote of confidence. Tencent previously invested in Snapchat before it went public.
According to a regulatory filing made by Snap, Martin Lau, president of Tencent, said his company is “excited to deepen its shareholding relationship with us, and that it looks forward to sharing ideas and experiences”.
Revenue up, loss widens
Snaps’s Q3 revenue, the majority of which comes from advertisements, increased to $207.9 million from $128.2 million a year earlier, while it posted a net loss of $443.2 million, an increase from $124.2 million.
The company recorded a $39.9 million charge in the quarter related to excess inventory of its Spectacles product, its first foray into hardware.
Co-founder and CEO Evan Spiegel admitted in an earnings call: “Unfortunately, we misjudged strong early demand for Spectacles and purchased more inventory than we now anticipate being able to sell… Moving forward, we will continue to be in the market place with Spectacles and expect modest revenue from the product line.”
He also noted that daily active users (DAU) of its Snapchat app grew “at a lower rate than we would have liked” in the quarter, increasing by 4.5 million.
DAU grew from 153 million to 178 million year-on-year.
On the up side, he noted user engagement “continues to grow at a meaningful clip, with time spent, frequency of use, and Snap creation all increasing, while Snap Ad impressions have grown over 400 per cent year-over-year.”
He also said Snapchat “has likely become the world’s most-used camera, with more than 3.5 billion Snaps created every day, up more than 40 per cent year-over-year”.
Building a new app
Spiegel said Snapchat reaches over 70 per cent of the 13 to 34 year-old population in the US, France, the UK and Australia. Now, the firm wants to accelerate adoption with users in three categories: those outside these markets, Android users, and those over the age of 34.
It is building a new version of its Android app that will launch in select markets before rolling out more widely.
It will build on “everything we have learned about building for Android over the past five years, to provide a more performant product experience that we know our community will appreciate”.
He said many have complained Snapchat is difficult to understand or hard to use, and it is redesigning the app to improve on this.
“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behaviour of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial long-term benefits to our business,” he said.
He also said Snap will make it easier to discover “the vast quantity of content on our platform that goes undiscovered or unseen every day.”
Competition from Instagram
Instagram notoriously mimicked Snapchat’s most popular feature, Snap Stories, to create a rival which performed better than the original. Earlier this week parent Facebook announced Instagram Stories reached 300 million DAU, which is 122 million more than all of Snapchat.
Instagram has also redesigned the layout of its app to give its Stories feature greater prominence, a move highlighting the increasing importance of the service.
According to Richard Windsor, a telecoms analyst who writes for Radio Free Mobile, Snap is a “small, weak player being ground into the dust by a larger, much more powerful rival”.
In his opinion, Snap’s active users “are not growing because Instagram has successfully copied all of Snap’s user experience innovations and made them easier to access.”
He added that “Snap now finds itself being forced to redesign its user experience in a desperate attempt to drive user growth which, by its own admission, puts at risk the usage and revenues it already has”.