What does the future hold for Snapchat?
Where will Snapchat be in the next year? That’s the question on everyone’s lips as the popular mobile messaging and multimedia mobile app continues to undergo growing pains in its quest for social media domination. Snapchat’s parent company, Snap Inc., started and run by former Stanford students and Kappa Sigma fraternity brothers Evan Spiegel and Bobby Murphy, has performed below standards since its March 2017 initial public offering. It is currently trading at below its IPO price of $17 and less than half of its peak price of $30. The release of third quarter results in early November led to a 15% drop in share prices in one day, after the company revealed several troubling outcomes. Snap added only 4.5 million new users instead of the expected 8 million for a stagnant 3% growth rate, lost $40 million after an overestimation of demand for its first hardware project, camera-equipped “Snapchat Spectacles” resulted in excess inventory, and reported a 60% drop in advertising rates as compared to last year. As a result, Snap has been forced to undergo several rounds of layoffs and plans to dramatically decrease hiring in 2018, according to internal emails by CEO Spiegel.
GBH Insights analyst Dan Ives echoed the opinions of many by noting that “investor patience is starting to wear very thin.”
How does Snap plan to bounce back? All signs indicate that the company will continue to aggressively court its key user base of teens and millennials in efforts to increase market share, as compared to Instagram and Facebook, through technology updates that also seek to maximize advertising revenue. As early as early 2016, 63% of Snapchat’s user base was between the ages of 13 and 34. Youth is built into Snapchat’s DNA- 27-year-old Spiegel is one of the youngest entrepreneurs in history to take a company public and one of the youngest to lead a company as valuable as $30 billion.
Early on, now-chief competitors Facebook and Google offered to buy Snapchat. Facebook CEO Mark Zuckerberg tried to buy Snapchat for $3 billion in 2013, and since being rebuffed, has copied Snapchat’s central idea by adding the feature of “Instagram Stories” into the Facebook-owned Instagram app. By early 2017, Instagram Stories already had 150 million daily active users 5 months after its launch, as compared to Snapchat’s 110 million daily users. Snapchat’s major advantage, its younger audience, is being targeted by Facebook as they seek to build Instagram’s market share. Google sought to buy Snapchat for $30 billion in 2016 before Snap’s last funding round before its IPO, but Snapchat’s continuous refusal of acquisition offers show its desire for independence.
Snap generated $404.5 million in revenue in 2016, mostly from advertising. Snap hopes to benefit from surges in mobile advertising, as companies seek to market themselves through consumers’ phones instead of the television and print. To capture a high volume of mobile advertisers, Snapchat hopes to attract users through a variety of novel changes. The company is seeking to further its partnerships with media brands such as Buzzfeed and Cosmopolitan to ensure that users see Snapchat as a place to not only send funny selfies to friends, but also learn about the news and read enjoyable “listicle” style articles. Furthermore, Snapchat is entering the realm of original video content through lining up networks like NCB, ESPN, and Turner to produce content for its burgeoning “Shows” platform. The company is also hoping to enter the world of augmented reality.
Will these new innovations be enough for Snapchat to maintain its hold over millennials, and quickly grow its user base and revenue against more established social media networks? Everyone in the tech world is eagerly watching to see if the young company will flourish, or remain a millennial-centered gimmick.