It has been a disastrous year for Snap Inc (NYSE:SNAP). Snap stock is down more than 37% since the start of this year. The company is under pressure amid a growing competition from Facebook and Instagram. Snapchat recently revealed its new redesigned app. Analysts think that this change could make or break the company. Snap’s new app has several key changes. Snap wants to increase its engagement within messages. Therefore, the company has given an easier access to messages by placing the messages tab on the front. Snapchat now shows ads within the messaging tab.
This will result in increased ads revenue, but could also affect the user base, as users are becoming more averse to intrusive advertising. Snapchat users will now be able to see content from figures who do not follow you back (celebrities). This will increase viewership and engagement. Snapchat is also working to improve engagement. Snapchat’s biggest strength is the exclusivity it has among its user base. According to a study, as of the end of the second quarter, over 92% of Snap users do not use other social media platforms. The redesigned app could disturb this metric, as users are expected to dislike the increased intrusive ads and pings. Snapchat’s only option in the coming years is to monetize its exclusive and loyal user base.
Analysts think that investors should not link all their hopes with the redesigned app. Snap will take years to become a player strong enough to compete with Facebook and Snap.
Snap’s growth is slowing. In the third quarter, Snapchat added only 5 million new users. The company now has 178 million users. Sequential growth slowed to three percent, and annual growth has now plummeted to 20%. Snapchat is being devastated by the growth of Instagram. Instagram Stories alone has over 300 million users. In order to offset losses and get back growth, Snap will take some desperate steps in the future. This could result in more cash burning. In the third quarter, Snap burned a whopping $220 million in cash. This cash burning rate will take a toll on the company’s already fledgling financial base.
Hedge funds and famous investors are also bearish on Snap stock. According to an estimate, only 26% of the total shareholders of Snap are institutions. Insider selling at Snap is also increasing, which presents a pretty bearish sentiment within the company’s own circle. According to Barron’s, four major executives at Snap have sold over $38 million worth of Snap stock, since the expiration of lockup period after Snap IPO. With this in mind, Snapchat remains a risky investment, to be approached with extreme caution.
September 4, 2018
August 30, 2018
August 9, 2018