What Do We Know About Snapchat?
Founded in 2011, Snapchat is an American multimedia messaging app developed by Snap Inc. This social media app faced explosive growth in 2013, and it reached its peak around 2016, a year before Snap stock went public.
The app is famous for allowing users to send each other pictures (also known as snaps) that disappear after they’re viewed. At the time of its release, Snapchat was the only app providing this service, and its uniqueness contributed to its popularity.
Photo illustration: Freepik
Still, that wasn’t the only special feature Snapchat had to offer. Snapchat users could send drawings or draw over pictures, which was an entertaining feature for teenagers looking for ways to pass the time. Eventually, Snapchat introduced another function– photos (snaps) with a 1-day span, allowing users to share their stories with more people in the community.
Although popularized by Instagram, Snapchat was the inventor of the Stories format. But, as Instagram, and later TikTok, gained more popularity, the hype around Snapchat began to fade away anyway.
Snapchat Has More Users Than Ever
Despite being replaced by Instagram and TikTok, Snapchat still has a decent user base. Statista survey conducted in January 2022 shows that this social media platform had roughly 557 million monthly active users at the beginning of 2022.
If we take a look at the chart, it’s evident that Snapchat is almost at the bottom of the list. Other social media platforms, such as Instagram, TikTok, and WeChat, had roughly 1.48, 1.0, and 1.2 billion monthly active users, respectively.
Photo illustration: Freepik
Another research measured how many people use Snapchat daily. The Statista study shows this social media platform had roughly 363 million daily active users in the third quarter of 2022. Compared to the third quarter of 2021, when Snapchat had around 306 million daily active users, it appears that Snap is doing more than well.
Why Is Snapchat Losing Its Popularity?
As stated earlier, Snapchat’s popularity peaked around 2016. However, in 2022, Snap appears to be sitting at the back of the bus. Although it has more active users than ever, Snapchat lost its relevance.
The trouble began once the pandemic started. As most people were in lockdown and had nothing to do, Snapchat became a tool reflecting dissatisfaction with current events. In other words, no one wanted to use snap because they had nothing new to show.
Instagram, and other prominent social media apps, on the other hand, allow people to expand their horizons and watch videos posted by people worldwide. So, when socialization and interaction were imperative, Instagram and TikTok had much more to offer than Snapchat.
But how can Snapchat have more users than ever and still lose its relevance? Simply put, this social media network has been overshadowed by its competition, including YouTube, Instagram, and TikTok. These platforms have more users, are popular among older generations, and regularly appear in the mainstream media.
So, compared to social media giants, Snapchat is kind of irrelevant. Based on this Statista research, Facebook has almost three billion monthly users, followed by YouTube (roughly 2.5 billion), WhatsApp (around two billion), and Instagram (approximately 1.2 billion).
Snapchat, on the other hand, only has around 500 million monthly active users. It’s evident that more people prefer to spend time on other social media apps. Although Snapchat has a decent user base, it isn’t nearly as popular as Instagram or Facebook.
Around 2016, Snapchat had a smaller user base. However, Snapchat was more relevant back then, as it was innovative and had fewer competitors to beat.
But Snapchat isn’t losing popularity among users only. The company’s stock has fluctuated exceedingly since it first went public on March 2, 2017.
The stock market is volatile, and price fluctuations are a regular occurrence in the trading world. Investors usually use these market changes to their advantage, allowing them to buy cheap and sell high. However, Snap’s stock price isn’t only shaky– it’s going down rapidly, affecting the company long-term.
Snap Stock is Down 22%
Snap stock plunged over 27% on Friday, October 21. The stock price plummeted to $7.76 after closing at $10.86 the day before. Although there were minor fluctuations that day, Snap stock didn’t go over $8.15 or drop below $7.33.
The stock price drop happened shortly after the company released financial reports for the third quarter of 2022. Snap’s accumulated revenue for this period was $1.13 billion, which was only a slight 6% increase from the previous year’s Q3 financial report. Although $1.14 billion in revenue might seem impressive, it was way less than Wall Street had expected.
Photo illustration: Freepik
Another potentially concerning detail is that this revenue loss happened after Snap had planned to cut off roughly 20% of employees at the end of August 2022. According to the New York Times, the layoffs affected approximately 1,300 out of 6,400 Snap employees.
After a sudden employee purge, one would expect Snap to boast about revenue growth. However, that wasn’t the case.
Snap’s Net Income Is Almost Non-existent
Statista’s report on Snap’s net income from the first quarter of 2015 to the third quarter of 2022 shows that Snap has been struggling to generate a steady income for a while.
Net income refers to the amount of money a business makes after deducing costs and taxes. Conversely, net loss happens when a business’s total expenditures exceed the revenue.
According to Statista, Snap’s net loss in the first quarter of 2015 was $98.91 million. Still, the most significant revenue loss occurred in 2017, when the company lost $2.2 billion.
Snap struggled with insufficient revenue until the fourth quarter of 2021, when its net income reached $22.55 million. Still, the following financial report (Q1 2022) showcased a $359.62 million net loss that dismantled Snap’s chances of generating income soon.
The last two financial reports didn’t show much improvement regarding Snap’s devastating net loss. Q2 2022 was marked by a $422.07 net loss, while the report for the third quarter of 2022 implied a loss of $360 million.
Why Is Snap Losing the Battle?
It’s challenging to determine the exact reason for Snap’s losses. However, some studies can help us detect what contributed to Snap’s unfortunate money problems.
Snap’s known for investing significant resources into research and development. Its research and development (R&D) expenditure was $1.1 billion in 2020, followed by $1.5 billion in 2021.
Still, those weren’t the only times Snap invested a fortune in research. For example, the company spent roughly $82.24 and $183.68 million on R&D in 2015 and 2016, respectively.
Snap has invested billions of dollars so far in the company’s betterment. Although the company wouldn’t waste billions on unproductive research, these numbers, compared to Snap’s net losses, show that R&D expenditure is the main contributor to Snap’s revenue loss.
When Stock Prices Drop, Investors Take Flight
Another possible explanation for Snap’s stock value drop is the market’s nature. The market is unpredictable, and once the loss occurs, it’s challenging to provide value and give investors good reasons to re-invest in your stock.
With that in mind, panic selling can occur when investors aren’t satisfied with a company’s financial report.
So, let’s consider Snap’s poor performance over the past few years. Snap can’t break the loss cycle because investors regularly go on Snap stock purges after reading quarterly reports.