Snap Inc. (SNAP 3.01%) has only been around since 2011 and has only been public since this past March, but its stock is already becoming a cautionary tale.
The company, built around a popular social-media app, recently reported another round of disappointing earnings as it becomes an example of what can happen when a giant like Facebook (META 2.62%) suddenly steps into the ring.
Snap went through a big redesign this month after announcing another round of disappointing earnings.
Facebook vs. Snap Inc.
When you're just looking at age, Facebook is the grandpa in comparison to Snapchat. However, Facebook's social apps, namely Instagram, make Snapchat look like the grandpa.
Last fall, Facebook decided to take Instagram to the next level by adding a "Stories" feature similar to the one seen on Snapchat -- except Instagram stories were easier to use and navigate to, plus you didn't have to add someone to see his or her story.
Snapchat got too comfortable with its position as the hot new app for millennials and suddenly had to start playing catch-up to Facebook on a feature that it had originated. For example, after Instagram started allowing users to easily rewatch a story by tapping on the left side of the screen, Snapchat soon followed up with the same option after hearing complaints.
The numbers certainly don't lie. Earlier this month, Facebook reported 300 million daily active users for Instagram Stories. Meanwhile, Snapchat recently reported 178 million daily active users.
The bottom line is that Instagram offers more than Snapchat does to its users, as well as an easier-to-use interface. Instagram users can have a sleek profile filled with filtered photos while providing more frequent and casual updates through the Stories feature on the app. Why should someone have to open two apps when he or she can get everything on one app? Snapchat lost its unique feature overnight once Instagram started allowing people to post content on their "Stories" that will disappear in 24 hours.
Will a Snapchat redesign help?
After a few rounds of lackluster earnings reports and corresponding downgrades on Wall Street, Snapchat seems to finally be taking complaints about its design more seriously.
During the company's latest earnings call, Snap CEO Evan Spiegel made a big announcement: Snap plans to release an entirely new app for Android users, as well as a redesigned app for iPhone users.
"One thing we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback," Spiegel said.
But is a redesign going to suddenly make Snapchat more relevant? The company should have made its app simpler and more enjoyable to use years ago, before Instagram came in and made the same app, only better. Updating the design in 2017, a year after Instagram swooped into the disappearing-content scene, seems too little, too late.
The real issue is no longer the design; it's that Instagram can offer users what Snapchat is offering them, plus more.
Where does Snap go from here?
Snap is struggling to attract users, which means it's struggling to attract new advertisers and struggling to monetize its platform.
For the latest quarter, the company added 4.5 million users while analysts were expecting 6.5 million additions. Furthermore, the price of the average ad on Snapchat fell 60% in the past year as advertisers flock to greener pastures on Facebook and Google.
Now, with a redesign on the calendar, Snap's future is more uncertain than ever. On the earnings call, Spiegel sent a warning to investors that the design overhaul could alienate existing users. But Snap is hoping it will pay off in the long term by attracting new users that would have otherwise been turned off by the complicated design.
"There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don't yet know how the behavior of our community will change when they begin to use our updated application," Spiegel told investors. "We're willing to take that risk for what we believe are substantial long-term benefits to our business."
For Snap investors, the best case scenario is that Snap has another few disappointing quarters as users adjust to the redesigned app before it begins to steadily tick upward. However, when you look at the $443 million Snap lost this quarter, partly because of the $40 million charge it took on the Spectacles it failed to sell, it's hard to imagine a redesign can help it out of its misery.
