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.

  • Founded in 2011 by CEO Evan Spiegel
  • 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.
  • In 2017, the company posted turnover of $824.95 million but made a net loss of $3.5 billion.
  • Snapchat currently has over 188 million active daily users (Q2 2018).

Snap has been trying desperately to revive user growth and generate revenue through new avenues. In the 2nd quarter of 2018, Snap's number of daily active users fell by 3 million. 

Snap's share price fell to a record low after it announced that it would launch its own scripted content. "Snap Originals" failed to entice investors who felt that this wouldn't revive the company and stop its dwindling base. Share prices fell to a record low in response to the news. (Business Insider)

Snap also recently struck deals with the NFL and NBC in order to add more sports video to the platform. (Engadget)

There is also trouble in the board room. The CEO promoted Kristen O'Hara as the company's new Chief Business Officer but then changed  his mind 2 days later. Jeremi Gorman was instead hired to fill the position. Snap declined to comment on the reasoning. (Bloomberg)

A report by research firm MoffettNathanson claims that Snap is quickly running out of money and will soon need a cash injection. (Bloomberg)

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 191 million users worldwide but this has only grown by 4 million since the start of 2018, a 50% fall in growth rate. This has been partially attributed to the App Upgrade mentioned below.

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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