How Snapchat Plans to Turn It Around After a Brutal 88% Stock Drop | Analysis

At Snap’s annual Partner Summit in Santa Monica on Tuesday, CEO Evan Spiegel offered a glimpse at how the struggling tech company, whose stock has plummeted 88% in the last two and half years, plans to rebound. Wall Street analysts liked much of what they heard, but are still uncertain the company behind the pictures-and-messaging app will ultimately be able to cut into the dominance of Instagram and TikTok. 

“Changing the app, taking the noise out of it, is the right call,” Gene Munster, head of Deepwater Asset Management, told TheWrap. “They know exactly where most usage comes from, and when you take a little bit of friction out of products, usage can move up dramatically.” 

Nonetheless Munster was skeptical. “They’re on the right track, but to do the hardware and the software is really tough, and I don’t know if they have the chops to do it.”

The Snapchat app already has incredibly strong engagement, with 432 million daily active users with ads and $4.6 billion in revenue in 2023. What it doesn’t have after 13 years is profit.

The big change the 34-year-old Spiegel announced was a “simplified” version of its app. “Simple Snapchat” will go from five tabs to three tabs — one for messages and stories with friends and another tab that showcases videos from creators and its publishing partners. Less clutter, Snap is betting, will lead to more time spent on the app.

The move, coupled with Snap’s recent decision to start testing “Sponsored Snaps” next to messages from friends, show it is aiming to leverage its strength as a messaging app to drive revenue. 

That’s a must for the company, which is struggling to keep pace with its social media rivals. While Snapchat has added users each quarter, the company has also continued to lose money. 

“The story of Snap is great engagement, but poor monetization,” Munster said. 

But Spiegel, in a memo posted earlier this month, said Snap is emerging from the financial darkness. 

“Over the past year we successfully reversed two years of declining year-over-year revenue growth and are pacing towards record annual revenue,” he said. “We built a sustainable cost structure, resulting in improved earnings and cash flow – again reversing two years of declines.”

Snap representatives declined to comment further to TheWrap for this story.

From disappearing-message pioneer to social media also-ran

When it first launched 13 years ago, Snapchat was the app for teenagers and young adults, thanks to its disappearing pictures and messages. The company created by Spiegel, Bobby Murphy and Reggie Brown while at Stanford went public in 2017, and its stock soared as high as $83 per share, but competitor-inflicted cracks in the foundation were already beginning to show by then.  

Meta-owned Instagram brazenly ripped off Stories, one of Snapchat’s core features, in 2016, allowing users to post videos and pictures that are available for followers to see for 24 hours. The move worked so well for Instagram that it’s continued to steal more features first designed by Snapchat, as if the app were its minor league affiliate.  

More recently, TikTok has become the go-to app for vertical video, which is the same content Snap helped popularize and with which it still strongly identifies.

Still, even with the increased competition, Snapchat has remained remarkably popular among young users. The app is used daily by 51% of kids 13-17 in the U.S., according to a Pew Research Center study from last December — making it the third-most used app among teens, behind YouTube (71%) and TikTok (58%).

Snap lost $554 million in the first half of 2024. That actually marked an improvement from the first six months of 2023, when the company lost $706 million. During the first half of 2024, the company brought in $2.43 billion in revenues, up 25% from $2.0 billion in the first half of 2023.

At the end of June, the company had $3 billion in cash and $3.6 billion in debt. That compares to mid-2022 when Snap had $4.9 billion in cash and $3.7 billion in debt.

As the losses have mounted, investors have fled Snap. The company’s stock is down 40% this year, and has dropped nearly 90% from its all-time high of $83.11 in 2021.

At the same time, Snap added 10 million daily users during the second quarter of 2024 to reach 432 million, up 2.4% from the first quarter, and up 9% from the second quarter of 2023.

If Snap is going to complete its rebound, innovation – the ingredient that helped Snapchat grab millions of users and spurred its competitors to copy its best features to begin with – will be a critical component. On Tuesday, Spiegel and company executives showed off several new augmented reality and AI features coming to Snapchat, as well as its fifth iteration of Spectacles, the company’s wearable AR-powered sunglasses. 

VR headsets from competitors like Apple and Meta haven’t caught on, in large part because they’re clunky and off-putting to bystanders – Spiegel even joked about this on stage – but Spectacles haven’t gone mainstream yet, either.

Taking it all into consideration, analysts gave a thumbs up to Snap’s new game plan, but are wary the company brass will be able to pull off a full rebound. 

“While the company has demonstrated progress in [Augmented Reality] initiatives and exceeded expectations with user growth and engagement, we believe sentiment toward Snap remains negative, largely due to volatile fundamentals and revenue growth below social media peers,” Rohit Kulkarni, managing director at Roth Capital Partners, said in a note to clients on Wednesday. 

Despite Snap’s progress in attracting small and medium-sized advertisers, “we aren’t confident of management’s ability to consistently execute over several quarters,” Kulkarni added.

Munster, who is long on Meta and doesn’t own Snap, said Spiegel’s promised changes will put the company in a “better place,” but may not be enough to turn around the company. And while Snap’s stock drop would seem to make it a potential buyout target, he said that’s unlikely.

“The number of companies who can actually buy it are limited,” Munster said. “Because the people who would buy it, like Meta, already have products like it. And for Google to get something done is unlikely, just given the regulatory environment.”

Instead, a potential buyer would likely need to be a company out of “left-field,” he said, like Oracle, which previously worked to grab TikTok in 2020 when it was facing a U.S. ban.

The post How Snapchat Plans to Turn It Around After a Brutal 88% Stock Drop | Analysis appeared first on TheWrap.