Snap overhauls app to attract users after sluggish growth

Bloomberg

Snap Inc. still isn’t meeting much-lowered projections for growth. Now the company is taking drastic measures to shape its future.
While ad prices fell as part of a transition in the company’s sales system, the larger problem, Snap said, is that people complain they don’t know how to use the Snapchat mobile-messaging app. Once part of the app’s allure for teens, the company now considers its mystery a hurdle to future growth. So Snapchat is being redesigned.
“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,” Chief Executive Officer Evan Spiegel said in his remarks to investors. “We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
As a part of the overhaul, Snapchat is building an algorithm to show people a personalised version of the stories they might want to see.
Spiegel didn’t give many
details, except to say that
the nature of Snapchat—conversations between friends— would be preserved, even as it becomes easier for those users to see content from those who aren’t their friends. The move would help Snap and its media partners make more money from ads on curated content.
Snap said third-quarter revenue was $207.9 million, falling short of the $235.5 million analysts predicted. Daily users averaged 178 million, less than the 180.5 million estimate
of analysts surveyed by Bloomberg.
Sales estimates for Snap have been declining since its March initial public offering. The Los Angeles-based company is working to prove it can build a successful business and keep adding users at a healthy pace, no matter what Facebook Inc does to copy its most popular features. Snapchat, which lets people send photo and video messages that disappear, is also competing in an advertising market where Facebook and Alphabet Inc’s Google nab the majority of new spending.
The shares have dropped more than 10 percent since the IPO amid concern about slowing user growth and questions about the company’s advertising business. Spiegel, who prefers to be secretive about his plans, said he realised he needs to communicate his strategy more clearly. If he can do that, quarterly results matter less, said Brian Wieser, an analyst at Pivotal Research.
“What really matters is what gives us some confidence in the long-term revenue opportunity,” Wieser said.
Snap’s shares fell to a low of $11.78 in extended trading after closing at $15.12 in New York. The company went public at $17 a share. Disappointing results since the IPO have caused optimism to wane. Analysts six months ago thought Snap could generate $1 billion in revenue this year. Now, they expect $871.3 million.