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Why Snap Shares Dropped Today

By Evan Niu, CFA – Apr 25, 2018 at 3:30PM

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The Snapchat operator reversed course on its controversial redesign...sort of.

What happened

Shares of Snap (SNAP 8.42%) have dropped today, down by 7% as of 3 p.m. EDT, after the Snapchat operator backtracked on its recent redesign. The new interface has been highly controversial among users, including some celebrities that drive a disproportionate amount of engagement on the service.

So what

Recode first reported that Snapchat is rolling out yet another version of the redesign to a small subset of users as a test. The most important aspect of the initial redesign was separating social content from professional media content, which created concern among some Street analysts that the change could hurt monetization. The new version undoes that change, putting user-generated Stories back into the Discover page alongside professional media content.

Snapchat logo

Image source: Snap.

Snap told the outlet that it is merely testing a new update based on user feedback.

Now what

The company's response is in stark contrast to CEO Evan Spiegel's comments earlier this year, when he effectively viewed the widespread backlash as validation that the new approach was better. That suggested that Snapchat users were just going to have to adapt, as the old version was not coming back. But now it's clear that Snap is at least considering bringing the old Snapchat back.

What could be rattling investors is why Snap is suddenly changing its tune. Did engagement decline significantly following the redesign? What about monetization and the ad business? Snap's ad business is very young, and therefore not on firm footing. Dramatic changes to the app's core interface carry quite a bit of risk to both engagement and monetization.

Investors can expect to hear more when the company reports first-quarter earnings on May 1.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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