Two years after struggling social media company Snap (NYSE:SNAP) made the bold move to completely redesign its flagship Snapchat app, the decision is looking like the right call.
At the time, that was anything but clear. The company faced immediate backlash and lost millions of users in the aftermath. However, Snapchat is now adding users, and user engagement and average revenue per user figures are both up.
The turnaround took more than a year to begin taking hold, but at this point, Snap’s gamble is paying off.
Two Years Ago, Snapchat’s Redesigned App Launched
In November 2017, Snap completely redesigned its Snapchat app. Instead of seeing everything as a single feed, the new Snapchat effectively separated the social (users’ friends) and the media (content creators and celebrities) into two sections. In a blog post announcing the news, the company wrote:
“Until now, social media has always mixed photos and videos from your friends with content from publishers and creators. While blurring the lines between professional content creators and your friends has been an interesting Internet experiment, it has also produced some strange side-effects (like fake news) and made us feel like we have to perform for our friends rather than just express ourselves.”
At the time, the company’s losses were mounting, it was under pressure to grow Snapchat’s user base and unsold Spectacles camera glasses had forced it to write off a warehouse full of hardware. Making the situation more critical, Facebook’s (NASDAQ:FB) competing Instagram Stories and WhatsApp Status had notched 300 million users each, surging past Snapchat in size.
The reaction to the Snapchat redesign was immediate and withering. A single tweet from Kylie Jenner criticizing the new app was enough to wipe $1.3 billion off Snap’s market capitalization. A petition from Snapchat users demanding the company roll back the changes gained 1.2 million signatures. In a single quarter, Snapchat lost 2% of its daily active users, the first time it had lost users since Snap went public.
Duke University professor Philip Napoli studies media regulation and audience measurement. In 2018, while Snap was still feeling the fallout, he told NBC News:
“The fact that Snapchat dared to tweak the formula as much as they did did more harm than good.”
That was true in the short term, but in the long term?
Positive Signs for Snap
2018 was a painful year for Snap, but it is becoming clearer that the divisive move was the right one, despite the pain it caused.
In November 2017 when the Snapchat redesign was announced, the social media service had 178 million daily active users. Its Q3 2017 earnings showed revenue of $207 million and a net loss of $443 million.
In Q2 2019, Snapchat added 13 million daily active users, and the good news continued into Q3. Revenue was up 50% to $446.2 million while the company’s net loss was down by 30% to $227.4 million. And Snapchat added millions of new users. Snapchat now has 210 million daily active users.
In addition, other social media giants including Facebook and Twitter (NYSE:TWTR) have been dragged through government investigations over issues including misuse of their platforms for election interference. The Snapchat redesign — which was specifically noted as being a way to combat “fake news” — has helped Snap to escape the same scrutiny.
The company is still not profitable and continues to face competition, including emerging platforms like TikTok. However, two years after a Snapchat redesign that looked at first as though it might send the company into a death spiral, Snap is back and on the growth path.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
