Snap

Summary

Snap is a Silicon Valley based tech firm and the parent company of Snapchat. Snapchat is a social media app which allows users to send customisable disappearing pictures and videos to each other. Snap’s international HQ is based in Soho, London, in which  all non-US sales are registered.

  • Snapchat was founded in 2011 by CEO Evan Spiegel
  • Daily active users (DAUs) increased 13% year-on-year to 210 million in Q3 2019.
  • As of March 2019, Snapchat reached 90% of all 13-34 year olds and 75% of 13-34 year olds use in the US.
  • Second-quarter revenue increased by 48% to $388 million which reflects year over year revenue growth.
  • Average revenue per user (ARPU) increased by 37% to $1.91 in Q2 2019 compared to $1.40 in Q1 2018.
  • 2.1 million snaps are created on Snapchat every minute worldwide and 3.5 billion snaps are created daily. 
  • Snapchat users spend an average of 26 minutes on the app per day.
  • In 2018, the company posted turnover of $1.180 billion but made a net loss of $1.255 billion.
  • Evan Spiegel was reported to be the highest paid CEO in America in 2017. He took home an estimated $637 million in salary and bonuses.

App “Upgrade”: Snapchat revamped its app in March 2018. The app was updated automatically for many users, much to their displeasure. The entire layout of the app was altered and many felt key functions such as “Stories” were not easily accessible. Kylie Jenner criticised the update on the twitter, wiping $1.2 billion off Snap’s value in a day. Over a million people signed a petition for Snap to reverse the update.

IPO: Snap launched its Initial Public Offering in March 2017. It was valued at $33 billion as it price closed a $24 per share on the opening day.

Spectacles: In February 2017, Snap launched its spectacles. It also changed its name from Snapchat Inc to Snap Inc to allow its app and spectacles to be marketed from one company. These spectacles however, failed to take off. Only 220,000 units were sold worldwide. So few have been sold that they were charged  $40 million for inventory space. Despite these poor sales, in May 2018 it released new versions of the spectacles

Data hack: In 2013, Snapchat was hacked and 4.6 million usernames were leaked onto the internet.

1) Profitability: Snap has yet to make a profit. Despite, revenue climbing by 54% year on year, Snap is not able to turn its user into profits.  The company only recently launched ads and the current ad revenue alone isn't enough to balance the books. With Snap's Spectacles (discussed below) failing miserably, the company will need to devise bigger and better monetization plans if it wants to be profitable.

2) User Growth: Snap has been struggling to add new users. Snap currently has over 190 million users worldwide and this number has been relatively stagnant throughout 2018 into 2019. The company is struggling to bring in as many new users and keep them active. This was partially due to the App Upgrade mentioned below but now the problems run deeper than this. 

3) Competition: There is no copyright protection on any of Snapchat’s core features. Facebook has already integrated many of the features of Snapchat into its own platforms. Instagram now offers customisable disappearing images and 24 hour “stories”. While there are not many other direct competitors, for now, Snap must be tactical if it is to retain its position.

Snap is not in crisis but its failure to turn users into profits is somewhat concerning. The lack of sufficient user growth is spooking investors as its share price is now under half of its IPO price. The issue with social media is that the apps can be faddish. Myspace was the largest social network site from 2004 until 2010 but since then, its user base has declined rapidly. A similar demise could happen to Snap unless they can find ways to bring in more users. Without increased user growth advertisers will seek better alternatives and reduced advertising revenue will sink them even further to the red.

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