Are Snapchat’s Growth Plans a Good Idea?

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In its most recent earnings announcement, Snap Inc. (NYSE: SNAP) reported that its Snapchat social media platform grew from 158 million daily active users in the fourth quarter of 2016 to 187 million for the same period last year. That’s good, but barely in the same league as Facebook Inc. (NASDAQ: FB) with 1.4 billion or Instagram with 500 million.

In an effort to appeal to a wider audience, Snapchat released a new interface last week that did not go down well with its core users: young adults (18 to 29 years old). Nearly three-quarters of U.S. adults in that age group have a Snapchat account, compared with about a third of all U.S. adults with an account. It’s clear where the growth path is, but the question is whether Snapchat should take it.

According to a recent survey by Morning Consult, that age disparity in account ownership is the widest among social media platforms. And Snapchat’s younger users are paying off for the company: 63% say they use the platform at least once a day, compared with 52% who did in a similar survey last April.

In a report on its survey results, Morning Consult noted:

And while Facebook Inc. and Instagram dwarf Snapchat on many important measures, … some experts say Snapchat’s exclusiveness is where its value lies — and that a move toward growing its audience to incorporate older generations comes with the risk of losing that appeal.

Snapchat recently rolled out a new interface that was not popular among its core users: nearly half of Snapchat’s 18- to 29-year-old users said they were less likely to use Snapchat with the redesign. A couple of high-profile users — Chrissy Teigen and Kylie Jenner — have expressed their displeasure with the new design, and when Jenner last week tweeted out her intention to leave the platform, Snap’s market cap dropped by more than $1 billion.

By the numbers, 51% of all Snapchat users told Morning Consult that they prefer the old interface and that percentage soared to 63% among its young adult users. While it may take some time for the new interface to take hold, it’s not altogether clear that it will help. Debra Aho Williamson of eMarketer wrote earlier this month: “The question will be whether younger users will still find Snapchat cool if more of their parents and grandparents are on it.”

And if Snap’s purpose was to boost both its user growth and its revenues, that may be wishful thinking. Morning Consult cites an analyst from research firm Morningstar, Ali Mogharabi, who noted that Snapchat’s main selling point for advertisers is its homogeneous (young) audience. If the company dilutes that, it loses its main differentiator from Facebook and Instagram.

For more information and a link to the survey results, see the full report at Morning Consult’s website.

Snap stock, which came public nearly a year ago at $17 a share, closed at $17.45 on Friday and traded higher in Monday’s premarket at $17.55. The stock’s 52-week range is $11.28 to $29.44. and the consensus 12-month price target is $15.60.

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