The Stories War has officially killed Snapchat’s growth. In Q2 2018 earnings today, Snapchat’s daily user count shrank 1.5 pecent percent to 188 million this quarter, down from 191 million and positive 2.9 percent user growth last quarter.
Snapchat did beat earnings expectations with $262.3 million in revenue and a loss of $0.14 while Wall Street estimated an EPS loss of $0.17 with $249.8 million in revenue. Snap’s net loss dereased by 20 percent year-over-year, so it only destroyed $353 million this quarter compared to $385 million last quarter. Snap will have some extra cash to extend its runway despite its still-massive losses thanks to a $250 million investment from Saudi Prince Al-Waleed Talal in exchange for a 2.3 percent stake in the company.
Despite its shrinking user count, the improvement to revenue (up 44 percent year-over-year) and reduced losses led Wall Street to boost Snap’s share price 4 percent in after-hours trading to around $13.65 after it closed at $13.12.
Snapchat is coming off of a disatrous Q1 earnings with its slowest ever user growth rate that led to a 24 percent plunge in its share price in May. But the company has been highly volatile, seeing a 37 percent boost in its share price after surprisingly positive Q4 2017 earnings. Now it’s proving that Facebook isn’t the only social network with growth troubles.
In hopes of distracting from the shrinking DAUs, Snapchat shared a monthly active user count for the first time: 100 million monthly active users in the US and Canada. Snap says this is the highest it’s ever been, yet the reveal highlights that teens are as addicted to daily Snapchat use as they once were. DAUs are a much more accurate way of measuring engagement and ad revenue potential, as opening a single notification and never returning can still register someone as an MAU.
CEO Evan Spiegel blamed the DAU shrinkage on “a slightly lower frequency of use among our user base due to the disruption caused by our redesign.” But since, he belives “we have now addressed the biggest frustrations we’ve heard” so he’s optimistic about future growth. On the other hand, he credits the redesign as producing an 8 percent increase in retention amongst users older than 35, demonstrating the new design is more obvious and well labeled.
During the earnings call, Snap’s new CFO Tim Stone mentioned that it’s interested in monetizing every part of the app, including “communication”. That could foreshadow more ads in the messaging inbox beyond the sponsored lenses users can play with to send augmented reality Snaps to friends. Snap says its still working to reengineer its Android app to boost performance and reduce churn, since that’s where most of its new users are coming in.
The quarter saw Snapchat escape much of the scrutiny facing other social networks regarding fake news and election interference. But it clearly still has issues with security, as Snapchat’s stolen source code was posted to Github today.
Snapchat started running unskippable ads in its Shows that could be a big money maker if extended to Stories. It began experimenting with ecommerce in earnest, allowing brands to sell things people can buy without leaving the app. It also opened self-serve buying of its augmented reality lens ads that people not only post, but play with for extended periods of time. And it launched its privacy-safe Snap Kit developer platform in hopes that alliances and referral traffic would help revive its user growth.
But problematically, its competitors like Instagram Stories continued to surge, with it now having 400 million daily Stories users and WhatsApp Status now having 450 million. Combined, Facebook has over 1.1 billion daily (duplicated) Stories users across its family of apps. That reach could make it tough for Snap to compete for ad dollars. And with its user count actually decreasing, that could make for a grim future for the teen sensation.