After Snap (NYSE:SNAP) went public in 2017, the stock crept into a dark zone for quite a while. The number of users was stagnating, revenue growth was questionable, and analysts had lost their confidence in the company's leadership. There were perfectly good reasons to boot Snap off your watch list and move on to other, better-managed companies.
So, you may be surprised to know that, as of the writing this article, the stock is up 186% year to date. Snap of 2019 has very little in common with the company you came to know in 2017, after it went public. What did Snap do to creep out of the dark zone? And more importantly, how can the company maintain its impressive resurrection and grow even more?
Focus on the target audience
Back in 2017 when Snap published its S1 Document, it introduced itself as a camera company and confused investors about what it does and how it plans to compete in the social media space. Most people considered Snap a new social media platform. The confusions didn't stop there and continued well into 2018 when Snap redesigned its core platform. Reality TV celebrity Kylie Jenner famously, shared her confusion about using Snap after the 2018 platform redesign. Such confusions became a significant barrier to growth. Between Q1 2018 and Q4 2018, the company lost at least 5 million daily active users.
Fast forward to Snap's Partner Summit 2019, CEO Evan Spiegel talked about how Snap had to focus on its core audience instead of trying to be everything to everyone. Snap released and enhanced several of its most popular features. Vertical videos, stories, maps, lenses, and bitmojis soon enabled an active audience to express themselves through Snap's platform better than anywhere else. Rather than a camera company, it seems users wanted to leverage Snap as a self-expression company. Focusing on its core audience therefore allowed Snap to grow its daily active users by 17 million between Q4 2018 and Q2 2019.
Still a camera company
Fast forward to Q2 2019 and it is now apparent that the definition of a camera by Snap is very different from what investors initially assumed. A camera was once a device to document noteworthy moments. Snap's camera is a means of having a conversation. Using Augmented Reality (AR), Snap allows its users to share their emotions and intentions. Snap's users talk, play, transform into their favorite characters, and experience magical moments with their friends and family using the lens feature. It appears that Snap's definition of a camera has nothing to do with owning the hardware anymore, and everything to do with software that leverages AR technology.
Lens Studio and Snap's creator community is not only a way for users to express themselves. It is also a way for Snap to attract new partner integrations who are willing to pay the company for exposure on its platform. Netflix, for example, uses tickers and lenses to promote binge-watching its shows on Snap's platform. Other examples of partner integrations are Fitbit's adoption of Snap's Bitmoji's on its wearable devices and GoFundMe's usage of Snap's stickers to make donating to a cause as easy as a swipe-up.
Snap's definition of being a camera company as a means of self-expression is also a way to attract partner integrations and generate revenue. Snap makes money through advertisements. However, advertisements take unique shapes and forms on Snap's platform. Snap's partners don't just put an ad banner on Snap. Instead, they use Snap's self-expression functionalities such as the Lens Studio to natively communicate with Snap's users. The company's unique approach to partner integration as a way of advertising has been working to its advantage. In Q2 2019, the quarterly revenue from partner advertisements was up 48% year-over-year.
It's quite possible that when Snap called itself a camera company, it wasn't envisioning an AR-empowered community of creators that allow its core audience of 14 to 34 to express themselves, and for the partners to advertise in new ways. But the company has found a way out of the confusion and it is now marching toward a clearer vision. The evidence of such resurrection is the company's rapidly growing revenue and engaged active users. Ironically, being a camera company may be the most important way for Snap to keep growing.