User growth has been at the top of the list of concerns surrounding Snap (NYSE:SNAP) since it filed its S-1 with the SEC back in February. Already, Snapchat was showing signs of a slowdown in the second half of 2016. The slowdown coincided with the release and sudden popularity of Instagram Stories, as Facebook (NASDAQ:FB) unabashedly copied Snapchat's best features.

While user growth did bounce back in the first quarter, it still disappointed most analysts. Now it appears Snapchat could disappoint investors once again. Instinet's Anthony DiClemente cites data from SensorTower showing a year-over-year decline in app downloads for Snapchat.

But user growth is just the start of Snap's problems. Snap is also having trouble attracting new advertisers to its platform, according to Oppenheimer's Jason Helfstein. New advertisers are coming on more slowly than they did last year, he wrote in a note. This is just the latest sign that Snap's slowing user growth is translating into less revenue growth than anticipated.

"Snap Inc." on a yellow background

Image source: Snap

More than just seasonality

On Snap's first-quarter earnings call, management blamed the sequential revenue decline on seasonality. While it's true the advertising market generally suffers a hangover in the first quarter after spending like crazy ahead of the holidays in the fourth quarter, Snapchat is still a very young and rapidly growing ad platform. Seasonality shouldn't have that much of an impact on its growth.

Snapchat saw more users spending more time on average in its app, but it still couldn't overcome the seasonal impact of the first quarter. For reference, Snap's revenue declined 10% sequentially. Facebook's revenue declined just 9% even though Facebook is a much larger, more established business, that's facing an ad load saturation challenge. In other words, it saw greater "seasonality" than Facebook.

What's really happening is that Facebook is still adding new advertisers while Snap has seen its new active advertiser growth slow. Facebook now has 5 million active advertisers, up from 4 million in September. That's allowed Facebook to produce steadily rising ad prices as demand increases faster than supply.

Snapchat appeals largely to big brand advertisers, though, with its customized video ad format and promoted lenses with high production value. Smaller advertisers aren't interested in spending a lot of money to produce an ad for a platform that's still in the testing phase for many of Snapchat's current advertisers. The good news, however, is that Snapchat's current advertisers continue to increase spending, according to Helfstein's report.

But that might not last long if user growth doesn't continue to bounce back. DiClemente's note about slowing app downloads also mentions an increase in downloads for Instagram. That trend is corroborated by Instagram's accelerating 100-million-user milestone announcements. It seems Instagram's growth is coming at the expense of Snapchat's.

What can Snap do about it

Snap just rolled out its self-serve ad platform to everyone earlier this month. The new ad-buying and ad-creation tools will make it easier for small businesses to advertise on Snapchat and see how their ads perform. The new ad-buying tool could make it easier for Snapchat's current advertisers to run more ads as well -- customizing audiences and responding to real-time events -- which could potentially lift ad sales.

But overall, Snap's goal is to make Snap ads as easy to buy as a Facebook ad. "I think what you will see is that over the next year or two, and on an ongoing basis, is a continued investment to make it as frictionless as possible for everybody to buy ad on our platform," Chief Strategy Officer Imran Kahn said on the company's first-quarter earnings call.

But ultimately, Snap's advertising problem stems from its lack of user growth. Although providing new ways to buy ads, new measurement tools, and new ad formats could help boost revenue numbers in the short term, Snap needs to focus on growing its users in the near term. And Facebook is making that very difficult.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.