Snap Inc. (NYSE:SNAP) continues to underperform on the public markets. After a debut in which shares were richly valued, the company has failed to grow into the market's lofty expectations. Shares currently trade hands at more than 20% below their 2017 $17 IPO price as user growth in particular has failed to impress. Perhaps more worrisome to investors is the fact Snap continues to post negative, and deteriorating, cash flow figures.
Snap's buy thesis was that its rapid growth and young user demographics would make the service a marketer's dream, as at the time Facebook's eponymous site was trending older. More recently, however, Facebook's Instagram has proven to be a Snap-killer, both in network effects and in growing the number of teen users, which were once considered Snap's strongest demographic.
In what's becoming a familiar occurrence, Snap recently admitted failure in another business. What should investors take away from the shuttering of Snapcash?
Snapcash joins a growing list of Snap misfires
According to technology-focused site Techcrunch and later verified by Snap, the company is shuttering its Snapcash product. The peer-to-peer cash transfer partnership with Square was launched in late 2014. However, the service never made a large splash in the space, even though growth in the industry has exploded with companies like Square and Venmo-owner PayPal reporting huge increases in users and transfer totals. Shares of the latter two companies have advanced by 167% and 52%, respectively, versus Snap's 8% decline over the last twelve months. Even larger players have entered the space, with Apple Pay and Google Pay adding cash-transfer functionality to their digital wallets.
Snapcash joins a growing list of Snap's initiatives that have failed to add significant value. Before its IPO, Snap had a grander vision for its social media site, with plans to create and develop original content for the Snap Channel. The company shuttered the service in less than a year. Snapchat's most visible initiative, Spectacles, resulted in a near-$40 million inventory write-down. Later, CEO Evan Spiegel observed "I guess we made the wrong decision" on the product. However, the company recently announced it would launch a second generation of Spectacles.
The failure of Snapcash, along with the other Snap initiatives, points to possible execution risk. It should be noted that others are succeeding in many of these areas. Several companies are succeeding in the cash-transfer space, and Facebook's Instagram has recently expanded into original content via IGTV, which follows Facebook's video platform, Watch.
Here's why Snapcash's failure doesn't matter
As disappointing as Snapcash's demise is, it's mostly symbolic for long-term investors. For starters, Snapcash produced little to no revenue, as the service was free to users. So, the company's revenue growth won't be affected by shuttering the service. If anything, Snapcash was a liability considering the increased costs the company incurred to monitor transaction disputes and possible illegal activity.
What all these failures have in common is they were all designed to keep users enmeshed in the service. Online measurement company SimilarWeb (via Recode) found that U.S. Android users spend nearly an hour a day on Facebook, followed by 53 minutes on Instagram. Importantly, Snapchat wasn't much lower, with approximately 50 minutes of daily time spent in June 2018, double the 25 minutes spent in July 2017. Spectacles, Snap Channel, and Snapcash were all launched to keep this figure growing at a rapid clip. While Snap has a few issues as an investment, one thing it's doing well is holding the attention of its users.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette, CFA owns shares of Alphabet (C shares) and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Facebook, PayPal Holdings, and Square. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.