Snap has a minor dip but can it learn Facebook’s lessons?

Snap has reported its numbers for the second quarter, and while the news is not wall-to-wall blockbusters, there does seem to be long-term confidence in the business.

For the first six months of 2018 Snap brought in total revenues of $492.9 million, up 49% year-on-year, while the net loss narrowed from $2.6 billion to $739 million. This might weigh heavily on the spreadsheets, but it wasn’t too long ago when Facebook was also haemorrhaging cash. The walled garden business model takes time to develop, and Snap is heading in the first direction after years of looking like nothing more than an expensive procrastination tool for teenagers.

“I’m really excited about the progress we’ve been making at Snap, and optimistic about the opportunities ahead as we continue to improve our team, reinforce our culture and invest in innovation,” said CEO Evan Spiegal. “We have focused a lot of our time and effort this past year on developing our team, culture and leadership that we need to rapidly scale our business.”

Perhaps the most worrying sign from the announcement is the Daily Active Users (DAUs). This number increased 8% to 188 million in Q2 2018, compared to 173 million in the same period of 2017, though it was down 2%, three million users, sequentially. Trends are heading the right direction year-on-year, so this might be nothing more than a blotch on a single page in the story, at least that it what Spiegal believes. Most importantly, investors seem to buy the explanation as share price barely moved.

The dip has been blamed on the redesign launched by the team earlier this year, which was not received on the best of terms by users. This was not a successful initiative by the team, and disastrous feedback led to a complete rethink. Spiegal highlighted the main frustrations have been addressed and corrected. It was a necessary move though, it took the users from engaging exclusively with friends to introduce ‘publisher stories’, and the most turbulent waves to seem to be in the past.

Aside from innovative partnerships, this does seem to be one of the growth factors. In terms of monetization, it does seem to be one of the simplest routes to market. It might not be the blockbuster display advertising which Facebook and other social media platforms are used to, but it is a more engaging way to monetize the user base. The number of users who watch publisher stories every day has grown by 15% over the course of 2018, partly fuelling the 35% increase in ARPU to $1.40.

The ARPU statistic is an interesting one here. $1.40 is not the end of the world, though it is quite a bit down on Facebook’s worldwide average of $5.97 and significantly shorter on the $25.91 it makes from users in the US and Canada. The next couple of quarters might give an indication of what type of platform Snapchat will eventually become.

Facebook is the master of monetizing the walled garden business model, though it has come at the expense of engagement recently. The reason youngers generations are favouring platforms such as Snapchat and Instagram over Facebook is because of how much commercial activity there is. Facebook got greedy and it has been affecting the future prospects of the business as user growth in key Western markets stalls.

Snap has to learn a lesson here. Making the platform overly commercialised, like Facebook has become, will be good for the spreadsheets for the next couple of quarters but the long-term impact could be detrimental. Once you lose the interest of the user, it will be tough to regain; there are plenty of other options on the internet to keep them busy.

Fortunately, Snap does seemed to have developed a solid culture of innovation. The short form videos are performing very effectively, 11 ‘Shows’ reached a monthly audience of over 10 million users, up from 7 in Q1 2018, while other features have been copied by competitors. The mentality does seem to develop new features with entertainment in mind, not direct monetization. Cash will come as long as you keep the users busy in the garden.

Users will define the prospects of the business and engagement will have to be maintained. Should Snap be able to keep greedy investors at bay, not sweating advertising revenues out of the user too intensely, this will certainly be a company in the money.

Snap set to have another crack at the specs market

A FCC filing from Snap indicates the social media firm is set to have another stab at making its connected glasses work, after a tepid response to the first go.

The filing is protected by various confidentiality requests, though it indicates Snap is working on a ‘wearable video camera’ with ‘spectacles’ branding and ‘model 002’ on the packaging. The product will also be compatible with the 2.402-2.48 GHz Bluetooth and 2.412-2.462 GHz Wifi frequency ranges. While there is still a bit of ambiguity, most would come to the fair assumption Snap is launching a new and improved range of Spectacles.

Perhaps it was a product ahead of its time or the team hadn’t worked out all the bugs, but the first attempt was less than successful (putting it mildly). The product was launched with a notable advertising campaign and promised great things to the industry. Unfortunately hundreds of thousands of products are reportedly sitting unsold in a Chinese warehouse as the product fell faster than a lead balloon.

This was an unfortunate development for Snap and the industry on the whole, as the product has the opportunity to bridge a couple of divides between the digital dream and reality. When the product was initially launched in 2016, connected products were limited. A lot has happened over the last two years to normalise the concept.

Snap has a unique opportunity in the tech space to make some positive waves here. It has a young audience, many of whom are digitally native and therefore more accepting of new ideas, and a direct usecase. You snap the content on your glasses and directly upload to the app. Few other brands have the content platform to build such a logical link, as few other platforms have built their message around user-generated content.

Should the idea of connected glasses take off, new doors are opened for wearables, as well as augmented reality and immersive content. This is where this sub-sector has struggled; normalising the hardware. Perhaps one of the reasons VR and AR have stalled over the last couple of months is because they are asking the consumer to take too large a step forward. Users like to be drip fed incremental advances, as progress can be a scary thought. Asking consumers to go from yesteryears normality to the fully immersive experience, where the user is essentially removed from the physical world, might have been too much.

The industry should be looking at Snap and hoping for a win here. Get the hardware out onto the market and then applications can be built into and on top of it. This is how the smartphone became successful, applications were limited in the early days, but as soon as mass market penetration was achieved all sorts of wonderful ideas, such as online dating and digital banking, became normalised. This might just be the first and logical step for the VR and AR world.

The one question which remains is whether this is an excellent example of the fail-fast business model, or if it is simply Snap throwing good money after bad. Only time will tell.

Snapchat feels the pain of the Jenner Effect

Earlier this month Snap wowed the world with some decent financial results, boosting shares by 25%, but negative feedback on its interface redesign and a damning tweet from Kylie Jenner have had the opposite effect.

This is a demonstration of how delicately balanced internet companies are and perhaps demonstrates why larger organizations are paranoid about doing anything too drastic when it comes to updates and upgrades. A good move would go relatively unnoticed, but a bad move can be disastrous.

The most vivid demonstration of this perilous journey for engagement, and maybe also the most amusing, can be seen below in a tweet from Kylie Jenner.

For those who don’t know who Kylie Jenner is, she is one of numerous celebrities who are famous for being famous and little else, who surged into the public eye as a result of reality TV. Jenner currently has 24.5 million followers on twitter, 59,000 of which decided to retweet the above message and while 311,000 liked it. Over the course of the last 24 hours, Snap’s share price declined more than 6%, wiping off more than $1 billion.

Of course, these 18 words declaring abandonment have not alone brought the misery to Snap. The company recently released an update to the app, which has proved incredibly unpopular, with many user complaining the features are more difficult to access or use.

At the time of writing, 1,234,420 have signed a petition on Change.org to try and convince the company to go back to the good old interface. While some might wonder what all the fuss is about, some have seemingly taken very personally. “The new Snapchat update sucks ass,” Sue-Anne van der Merwe wrote. “F*ck this update,” cried Taylor Richardson. “Snapchat is ASS and needs to change back,” pleaded Alahna Ramsdell.

How fortunes have changed. Three weeks ago the company released its latest financial performance with sales hitting $285.7 million, an increase of 72% year-on-year. Share price rocketed up 47%, but the redesign and the Jenner Effect have tumbled the price 15%. It is still a net gain, though the team will possibly be wanting to aim for a more consistent upwards trend. Rollercoaster rides are not fun for anyone involved.

This is the world of the internet though. An idea can blossom in a second and can crashing down even quicker. That said, despite the bad news at least one person is bounding around with a skip in his step though.

According to a SEC filing, over the course of 2017 Co-founder and CEO Evan Spiegel was paid a salary of $98,078 while also being awarded stock to the value of $636,612,889. Even with the share price decline, Spiegel is hardly going to be digging at the back of the sofa for loose change.

Snap’s spreadsheets start to crackle as sales pop

Snap has always been pretty good at coming up with new ideas to engage consumers but making money was always its Achilles heel.

For the three months ending December 31 sales hit $285.7 million, an increase of 72% year-on-year, while for the year it was up to $824.9 million, a 104% increase. While these numbers might sound impressive, net loss for the year stood at $3.4 billion mainly down to stock rewards to its engineers. This compares to a loss of $500 million in 2016. We’re not quite sure what to say about that numbers.

“Our business really came together towards the end of last year and I am very proud of our team for working hard to deliver these results,” said Snap CEO Evan Spiegel. “We executed well on our 2017 plan to improve quality, performance, and automation, which removed friction from our advertising business and improved our application for the Snapchat community.”

Looking at the audience numbers, Daily Active Users increased 8.9 million or 5% sequentially to 187 million, while ARPU was $1.53 in Q4 2017, up 46% year-over-year and 31% sequentially. These improvements have been partly put down to improvements of the experience of the Android application, which Spiegel said increased retention rates by 20%. These improvements have led to increased engagement for the users, and also better value for advertisers.

Of course, the numbers are still pretty small when compared to the other social media giants but they are heading in the right direction. To take the next steps, Snap will be looking to continually improve application performance, while also partner up with telcos to reduce the bandwidth cost of the app. On the sexier side of development, Spiegel also boasts about moves into the world of augmented reality and content.

On the content side of things, the Wall Street Journal is reporting a partnership between Snap and NBC focusing on the Olympic Games. As part of the agreement, NBC will broadcast two- to six-minute live segments of key moments from the games. This is another interesting idea from Snap.

This is part of the problem Snap has been facing; it has never really been rewarded for the good ideas the team comes up with this. This highlights partnership is a good idea which will open up the brand to new audiences, but it is something which will be replicated by the bigger boys in the social media playground. For instance, the stories feature which so many people use on Facebook and Instagram, was originally the brainchild of Snap. You have to give credit to Snap for coming up with good ideas, but the cash reward is being realised elsewhere.

Should Snap be able to get enough partners involved with these highlights partnerships there could be rewards for the team. The next logical step could be into cinema trailers and promos, but it will have to prove it can hold onto the audience and the idea first and foremost.