Snap hits speed bump on the road to recovery

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Snapchat spies on its users

A few years ago, things didn’t look good for Snapchat and its parent company, Snap. The company’s shares fell to $5 a pop. Its enterprise value had sunk below $5 billion from a peak $33 billion valuation. Users were fleeing by the millions.

Fast forward to today, and Snapchat has been growing its member base and business consistently. Since hitting rock bottom in 2018, shares have rallied, and millions of people continue to use the app daily. However, it appears investors aren’t entirely bought in on the recent success streak.

Snap’s shares fell 12 percent from $19 to $17 per share during after-hours trading on Tuesday. The company posted slower revenue growth than expected in the last quarter of 2019. Despite revenues being more than 40 percent higher than they were in 2018, shareholders want more.

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An Impressive Comeback

In the last three months of 2019, Snap reported a $561-million quarter, which was slightly under Wall Street’s expectations. The company’s net losses rose to $240 million, 42 percent of which is attributable to a $100 million legal charge.

Before this week’s plummet, Snap’s stock was ripping on an upward trajectory. The company finally climbed above its IPO price from 2017. Snap regained its footing in 2019 and started to turn things around. Snapchat had 30 million daily users last year. Marketers remain interested in the app, given the enthusiasm of the platform’s young and engaged audience.

Snapchat was a pioneer in bringing augmented reality technology to the social media sphere. The company continues to make investments in this area. Just last month, Snap acquired a new AR filter developer, AI Factory, out of Ukraine. Yet, it hasn’t always been this way.

Fighting Through the Early Stages

Much of Snap’s early struggles in the market were due to investor skepticism that the platform could keep up with competitors like Facebook and Instagram. Both apps have replicated the AR filter functionality that so many people loved about Snapchat when it first burst onto the scene.

Towards the end of 2018, Snapchat lost millions of followers after relaunching with a new design. Snap was trying to make its platform easier to use. Active users felt the new interface was even more difficult to navigate. The company’s experience was not dissimilar to other social media giants that have tried rolling out major updates in the past.

Even with the controversial release, Snap’s leaders have found a way to claw back from the bottom. CEO Evan Spiegel clarified why 2019 was such a good year. “You’re seeing a lot of investments we made – some of which were quite controversial – start paying off.”

Social Media Remains Competitive

At a high level, the social media landscape is only getting tougher for new entrants. Facebook and Instagram are still going strong. TikTok exploded onto the scene in 2019. It was the fourth-most downloaded app last year behind Facebook Messenger, Facebook, and WhatsApp Messenger.

However, since the start of the year, TikTok has had its fair share of challenges. Many are concerned about the app’s privacy because of its ties to ByteDance, a Beijing-based company that is currently the highest valued unicorn in the world. TikTok is reportedly searching for a U.S.-based CEO to calm stateside users.

In general, investors are wary of new platforms until they prove they are more than a fad. Snap’s leaders have shown they have a knack for bouncing back. We’ll see if they can get through the recent setback and continue an already impressive growth trajectory.

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