Why Snapchat Interface Updates Won’t Save Snap Inc Stock

A different look and feel doesn't solve the SNAP's overarching problem

If you’re a regular user of Snapchat, you’ll likely have noticed that parent company Snap Inc (NYSE:SNAP) has changed the look and feel of the video and image messaging app.

It’s more or less the same, though the interface is a bit simpler. The big change was a bifurcation of the communications you have with friends and the interaction you have with media organizations. The personal “Stories” feature is going away altogether, though the auto-advance tool is back to make user-created content easier to navigate.

Kudos to Snap CEO Evan Spiegel for doing something to reverse the struggling company’s fortune; too many companies would make no change whatsoever, yet still hope for a different outcome.

However, the problem for current and would-be owners of SNAP stock is that the reconfigured feel of the app’s interface doesn’t even come close to solving the bigger, philosophical problem Snapchat currently faces.

SNAP: Missing the Point

Web-centric companies change their look and feel all the time. The Facebook Inc (NASDAQ:FB) you know and love today looked fairly different than the one from 2007. Twitter Inc (NYSE:TWTR) now allows entries of 280 characters, doubling the previous cap of 140. So, the altered interface isn’t inherently a sign of trouble.

On the flipside, it’s also not a reason to assume SNAP stock is ready to work its way out of its lethargic funk, because the presentation isn’t its problem. The problem is far bigger. Snapchat, much like Twitter, has a purpose problem — not nearly enough consumers see a need for what Snapchat is, and as such, the platform lacks the scale advertisers (and media companies) seek.

As evidence of the scale problem, last quarter, the app only brought in 4.5 million new daily users into its ecosystem, pushing the total up to 178 million.

The scant progress is hardly the first instance its user-growth pace has slowed since the middle of 2016. Worse, however, its user base appears to be nearing a plateau well short of 500 million regular daily users Facebook’s Instagram boasts even though the similar Instagram started out well behind Snapchat.

It’s a sign that, if nothing else, such a tool requires another, unrelated compelling reason to sign up. In this case, Facebook could simply leverage its base of Facebook users to develop the necessary network that makes Instagram a viable platform.

There’s also the not-so-small reality that embellishing photographs with digital stickers isn’t all that interesting for very long to most users.

That said, a sheer lack of consumer interest in Snapchat may be as much of a symptom of an even bigger challenge as it is the problem itself. Just as challenging for current and potential owners of SNAP stock is a young CEO that may or may not be able to distinguish the difference between “clever” and “marketable.”

Lots of services or products are genius, but that doesn’t mean enough consumers want to buy or use that service or product. Just ask GoPro Inc (NASDAQ:GPRO), which makes the best action camera in the world. It just so happens that most of the world doesn’t actually want or need an action camera; it’s a niche product that was ballyhooed as one that everyone would want to own.

As evidence of the wrongly estimated interest in using Snapchat as a means of creating and sharing user-generated digital video, Evan Spiegel was touting the fact that that Snap had sold more than 150,000 sets of what it calls Spectacles, which are sunglasses with a built-in camera. The figure was well in excess of the company’s goal.

By the end of October, however, we learned less than 1% of Snapchat’s user base had purchased the experience-enhancing hardware, and in early November we learned Snap booked a $40 million write-down in its previous quarter thanks to a mountain of unsold inventory of the camera-glasses.

Again, it all points to a lack of clarity between what’s fun to think about and what can actually be sold at a profit.

Bottom Line for SNAP Stock

So, don’t look for the reconfigured app to turn things around for Snapchat, or for SNAP stock.

To be fair, the changes are likely to be ones that were well thought out, based on at least some study of how existing users (few in number as they are) used the older version of the app, and by listening to what they said they’d like to see changed. Then again, in light of the “Spectacles spectacle,” Snap isn’t an outfit that has recently proven it’s exactly in touch with consumers.

Wherever the company is with its effort to truly understand its users, it’s still nowhere close enough on that front to being where it needs to be. More than anything, Snapchat has a “clear and useful purpose” problem, much like Twitter had a little over a year ago — and to some degree it still has this problem. Until it’s definitively solved, the app’s updates are moot.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/snapchat-updates-wont-save-snap-inc-stock/.

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