Snap reduced its losses during the last quarter, but the company still can’t turn a profit and sustain growth in its user base. It’s been an absolute disaster for Snap ever since going public.
Users are ditching Snapchat, the company’s primary product. During Q3 2018, the social media platform lost 2 million monthly daily active users. Now there are 186 million DAUs, but the purge could continue. Competitors like Instagram and Twitter are picking up momentum as Snapchat fades.
Overall, Snap holds a 5 percent growth rate in DAUs for a year-over-year comparison. Even then, average revenue per user looks stagnant. Globally, it’s stable. Yet there was a major 12.5% drop in emerging markets where Snapchat’s been pushed to spur growth.
Here’s the Q3 2018 income statement:
As for its financials, the company exceeded expectations. Snap didn’t project a significant turnaround, but it saw an increase in revenue compared to the same quarter last year. It generated $298 million during the last three months. Still, Snap’s net loss came in at $325 million. With a shrinking user base, it’s unclear how Snap can recover and grab profitability.
The ongoing struggle to add users, increase revenue, and become profitable has turned off investors. In the morning hours on Friday, Snap fell below $6 per share for the first time. When the company went public in early 2017, the stock price opened at $24. There doesn’t seem to be an easy fix.
Evan Spiegel, who co-created Snapchat and runs its parent company, said this:
“There are billions of people around the world who do not yet use Snapchat. Continuing to improve our user experience and creating awareness about our value proposition are key drivers in growing our community.”
He added that Android devices contributed to the DAUs drop more than iOS devices. It’s speculated that a subpar app might’ve done so. Snap promised to improve its app for Android devices a year ago, but Snapchat’s still sluggish and behind in features on them.
To no surprise, emerging markets are where Android thrives but includes hardware limitations. If Snapchat isn’t optimized properly, users won’t stick around.
Snap doesn’t have all the time in the world, though. There’s $1.4 billion in cash and securities on hand. Unless it turns a profit in a year or so, Snap will need to explore loans and other alternatives to remain in business. Now those rejected offers from Facebook and Google several years ago don’t seem as unattractive.
Publicly, the company says it’ll be profitable in 2020 or 2021.
In addition to overhauling the Android app, Snap intends to roll out more unique content from publishers and advertisers. Though it’s a strategy that didn’t work earlier this year, content is what will make money. Snap just has to hope users find value in the content.
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