Shares of the parent company Snapchat reached a record low after its results showed the cost of the reverse reaction to the redesign of the application for social messaging.м
Snap’s share price fell 22% to $10.96 (£8.05) in early trading as investors reacted to ongoing concerns over its struggle to compete with Facebook and its subsidiary Instagram.
Snapchat started its first major redesign late last year and by February more than 1.2 million users had signed a petition calling for it to reverse the “annoying” changes. It capped a bad start to 2018 after a tweet from Kylie Jenner asking her 24 million followers “does anyone else not open Snapchat anymore?” proved a stock market kiss of death, wiping $1.3bn off the company’s value.
On Tuesday, the user backlash against Snapchat, known for its disappearing messages and photograph filters, affected the company’s first quarter results, which missed targets. The service managed to add just 4 million new users in the first quarter, just over half the number forecast.
Snapchat also issued a growth warning saying the redesign fallout would mean a substantial slowdown in revenue in the current quarter. Snapchat’s 27-year old founder, Evan Spiegel, attempted to brush off the disaster, saying the redesign was necessary to broaden the app’s popularity with users and advertisers. Even taking Wednesday’s share slump into account, Snap is worth $17.6bn (£13bn).
However, analysts were not impressed. “It is not clear to us why the app redesign – the first product Snap ever tested at scale – was rolled out broadly, and we are even less clear on why it hasn’t been more aggressively rolled back already,” said Lloyd Walmsley, a Deutsche Bank analyst.
Snapchat reported 191 million daily active users in the first quarter, missing expectations of 194.15 million. Revenue came in at $230.7m, an increase of more than 50% year on year but below the $244.5m forecast.
Snapchat, which launched in 2011, has proved hugely popular with younger users, many of whom have defected from older social media platforms such as Facebook, and in the UK it is forecast to make more in ad revenue than Twitter next year.
However, Snapchat’s biggest threat is Facebook and its Instagram service, with Mark Zuckerberg’s social platforms frequently aping Snapchat’s innovations.
Analysts believe that for Snapchat to succeed against Facebook and Instagram it must appeal to a much wider range of users beyond its core youth fanbase.
“While the user base continues to be dominated by younger age groups, Snapchat’s full revenue potential will remain somewhat restricted,” said Bill Fisher, an analyst at eMarketer. “And with the financial muscle of Facebook behind Snapchat’s close competitor, Instagram, the company is going to have to work ever harder for those ad dollars.”