Has Snap Inc. Stopped Growing, Giving Facebook More Growth Opportunities?

Snap Inc. could be in trouble soon after IPO

In the past, Facebook has tried to buy what is now Snap Inc., the camera company, but it was never successful. Now, it appears that Snap Inc. has kicked off its first quarterly earnings – since the IPO – in a bad way.

Earlier today, Snap Inc. (SNAP) announced a huge loss of $2.2 billion. What’s worse is that they only registered a 36 percent user growth over the prior period. That’s not bad, considering Facebook only posted 32 percent user growth at its own post-IPO quarterly report in 2012, but it was already at 552 million users then, compared to Snapchat’s current 166 million daily active users.

On the loss front, almost $2 billion of the loss went towards stock compensation costs related to the IPO. Facebook’s was $1.3 billion, in comparison. On the other hand, Facebook revenue was at $1.18 billion during its first reported quarter; Snap Inc. is currently at $150 million, disappointing analysts, who were expecting at least $158 million.

Of note is the fact that Snapchat’s core feature – photos and video clips that disappear after 24 hours – has now been copied by both of Facebook’s acquired social companies, Instagram and WhatsApp. That could be a plausible explanation for Snapchat’s own slow user growth over the Jan-Mar quarter.

Part of the larger problem is that Snapchat has been trying to expand beyond its core areas. It is essentially a one-to-one messaging app that’s fun and easy to use. It’s essentially not a social networking application like Facebook or WhatsApp. Those platforms are geared towards groups, discussions, crowdsourcing and so on.

Snapchat, on the other hand, tried to go the feature-rich way by offering “stories”, “discover” and other non-messaging features that don’t necessarily appeal to the demographic that it currently rules over – millennials.

From a long-term business perspective, Snap Inc. has to come up with ideas to not only expand its user base beyond messaging, but also beyond millennials. Advertisers typically flock towards a slightly older demographic that has the money to spend, and Snapchat’s audience isn’t that ideal for such a move.

One route Snapchat could take is acquisitions in the app space, buying up smaller but growing social apps that focus on groups. That might help them expand their user base. But to try and appeal to a 15-year-old at the same time as a 30-year-old might end up alienating both groups.

The slow user growth is not an insurmountable obstacle for Snapchat, but one thing is certain: any “inorganic” growth they exhibit will most likely be shadowed by Facebook, including acquiring other apps with key stand-out features.

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Source: Snap Quarterly Earnings Report