Snap's (NYSE:SNAP) redesign of the popular Snapchat app was immediately criticized upon its wide release on Feb. 6. By the end of February, over 1.2 million disgruntled users had signed a petition on change.org asking Snap to remove the update that they said made features more difficult to use.
Upset users are one thing. But now a number of publishers are being negatively affected by the update, sources told Select All, the tech site of New York Media. "Traffic has plummeted since the update," one of the sources told the publication.
For investors who are on the fence about buying shares of a company that doesn't yet have a clear path to profitability, this could be a big deal. If both users and publishers aren't happy, then Snap's ad revenue might take a hit, and then investors won't be happy either.
How bad is the Snapchat redesign for publishers?
The big change that came with the redesign was the separation of publishers' posts from friends' posts. Since the change rolled out, one source said their overall traffic on Snapchat's Discover page had been cut by more than 50%, Select All reported.
Snap first launched the "Discover" section on Snapchat in 2015 and subsequently partnered with a number of publishers like BuzzFeed and Cosmopolitan to produce content that featured a combination of articles, photos, and videos. This helped publishers build their brand and get a boost in traffic. Meanwhile, Snap used Discover as a prime space for ads and a way to get users to spend more time on the app. Last year, publishers made over $100 million through the Discover page, up from $58 million in the previous year, according to Snap's fourth-quarter financial report.
As publishers try to adjust to the changes on the app, Snap sent out invites in early January asking them to attend summits in late April to help work through any issues, Select All reported. The meetings will take place in both New York City and Los Angeles. One source said Snap sent out a poll asking for specific problems they'd like help on at the summit.
If other publications are seeing the same plummet in traffic on Snap Discover as the sources that spoke with Select All, then Snap should be feeling the pressure to make sure the summits go well -- especially ahead of its next earnings report next month. If publishers see their traffic cut in half on Snapchat, they may decide to drop it altogether and spend their time, money, and manpower elsewhere.
That's what happened to certain Facebook (NASDAQ:FB) publishers after the social media giant made recent changes to its New Feed algorithm that caused less news content to appear in users' feeds. Two Facebook publishers, Little Things and Rare.us, had to shutter their doors earlier this year due to the dramatic drop in traffic.
But Facebook has 2 billion users and made over $40 billion in 2017, so losing a few publishers isn't a big deal. For Snapchat, it's a different story. In February, Snap reported 187 million users and a full-year net loss of $3.4 billion. To keep investors happy, Snap needs its users and publishers to be happy so it can work on growing its ad revenue to offset its loses.
Is this part of the adjustment period Spiegel talked about?
It's important to note that even a more-established social media player like Facebook is having to go through an adjustment period after changing up its design.
During its third-quarter report in November, Snap CEO Even Spiegel even warned investors that the company was anticipating a period of adjustment but felt it would be worth it for the long-term benefits. The company made the changes after hearing complaints that the app was complicated to use, he noted. This is especially important as Snap looks to increase sign-ups of older users.
These reports from publishers would be in contrast to Spiegel's brief comments on its earnings call in February that early observations showed the redesign would help its long-term growth. Of course, it's possible Spiegel was referencing the future growth he hoped to see once they worked through any issues that popped up in the first few months.
Snapchat will report its earnings after the bell on May 1, and investors will be watching closely for signs that the redesign will help carry Snap to profitability.
Snap has been vocal about sticking to its redesign, even posting a response to the change.org petition that said (in a gentle way) that the separation of content from friends and publishers was here to stay.
Now the company needs to prove that was the right decision.