Going into its third-quarter earnings report, Snap Inc. (NYSE:SNAP) shares have been looking surprisingly strong. Shares of the Snapchat parent have jumped 33% since hitting an all-time low following the company's second-quarter earnings report.

There was no particular fundamental news on the company that drove the stock higher, but a couple of positive analyst notes, including an affirmation of the platform's ability to draw advertisers, pushed the stock higher over the past few months, rewriting the narrative of Snap as a broken IPO. 

However, a look at recent data on Snap's downloads and usage indicates that the trends that sank the stock in its first months on the market are still alive.

Two people watching a video on Snap's Spectacles

Image source: Snap.

Losing relevance

Snapchat's user and revenue growth has slowed in its first two earnings reports as a publicly traded company, and according to data from research firm Value Penguin, the company has continued to lose ground to Facebook's (NASDAQ:FB) Instagram. During the third quarter, Snapchat fell behind Instagram as the top photo and video app in downloads in the U.S. and the U.K for the first time since before 2016.  The only country Value Penguin found where Snapchat was still ahead of Instagram was France. 

It's no secret that Instagram Stories has put a dent in Snapchat's growth path. Instagram launched the copycat feature last year, and its Stories platform quickly gained more users than Snapchat. By April, Instagram Stories hit 200 million users, compared with just 158 for Snapchat at the time, and Instagram Stories now has 300 million users with Instagram up to more than 800 million monthly active users.

Meanwhile, Snapchat's growth has slowed considerably. Snapchat's users growth fell to 21% in the second quarter, and user growth outside North America and Europe slowed from about 100% in the second quarter of 2016 to less than 20% in Q2 of this year, according to Value Penguin. 

Instagram's incursion into Snapchat's territory underscores a key weakness of the direct-messaging platform. If Snapchat's most popular features can simply be co-opted by Facebook or one of its subsidiaries, the upstart social-media platform has little competitive advantage or even a unique aspect to its brand. That may explain why international growth slowed so suddenly following the release of Instagram Stories. If you already have Instagram on your phone, the need for Snapchat is significantly decreased if you can just use the Stories feature on Instagram.

Similarly, Facebook has borrowed profligately from Twitter (NYSE:TWTR), adding features like the trending box and the follow button, which are central to Twitter's function. While Twitter still fulfills a separate purpose from Facebook, those moves helped to erode its differences and have made Facebook a newsier platform than it was before. Like Twitter, Snap has struggled to court advertisers while Facebook, with its billions of users and gobs of data, is taking up much of the oxygen in the social-media ad space.

The hardware story is over

Snap's labeling of itself as a "camera company" never really made sense. The company's primary product is an app that allows users to send photos and images of themselves bespectacled with visual effects like dog ears. Snap's biggest attempt at being a camera company or a hardware maker came through Spectacles, the connected sunglasses that record video snippets and automatically saves them on users' Snapchat memories. However, we recently learned that Spectacles have flopped as well. 

According to reports, hundreds of thousands of Spectacles are sitting unsold in warehouses more than a year after their release, and more than half of purchasers stopped using them after just a month.  The product seems destined to follow Google Glass and other such attempts to make augmented-reality or connected eyewear into the dustbin. Similarly, virtual-reality headsets like the Facebook-owned Oculus Rift have mostly been a flop as manufacturers have been forced to slash prices, and the product appears to be fading into irrelevance. The lesson for Snap then appears that developing a successful hardware product is not going to be easy.

It's not all bad news for the company, though. According to Piper Jaffray, Snapchat is the most popular social-media platform among teens, increasing its share from 39% to 47%, and it's also strong with adults 18-24, but the company will have to branch beyond that niche to justify its current valuation at $18 billion.

With slowing user growth and fewer downloads, Snap looks set to report another disappointing quarter on Tuesday.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.