The company behind the popular social media platform Snapchat has seen its shares tumble after a major redesign led to a fierce user backlash.
Snap Inc. reported its Q1 financial results last night, with shares dropping 16 percent after they showed slow user growth, a vital metric for the still loss-making company. Snapchat only added four million new users in the first quarter of the year, which is around half of what was forecast.
Snap had a good last quarter of 2017, adding 8.9 million users for that period, so why the dramatic downturn? Since then the company has drastically redesigned its core app by separating personal feeds from ‘content creators’, in a bid to better appeal to advertisers and marketers and make the app easier to use for non-millennials.
The backlash was dramatic, with a million users signing a petition soon after the update was rolled out.
Then there is the Kylie Jenner effect. The model and member of the Kardashian reality bubble wiped $1.3 billion (£1 billion) off the stock market value of Snap's stock overnight after posting that she was sick of the social media platform. Jenner tweeted in February: "sooo does anyone else not open Snapchat anymore? Or is it just me... ugh this is so sad".
The company also reported revenue growth of 54 percent for Q1, at $230.7 million, but even this was framed around the issues with the redesign by CEO Evan Spiegel.
Speaking on the earnings call yesterday he told analysts: “Our redesign created some headwinds in our revenue this quarter by disrupting user behaviour and creating some apprehension among our advertising partners.
“We believe that our current path forward will address both issues, and that our advertising business has benefitted and will continue to benefit from the tough decisions we make in order to create and maintain a positive and healthy environment for our community over the long term.”
Spiegel also admitted that the redesign is effectively still a work in progress. “We are now focused on optimising the redesign based on our ongoing experimentation and learning,” he added.
Yuval Ben-Itzhak, CEO of Socialbakers said at the time: "While Snap’s app redesign announcement last year was definitely a step in the right direction, offering marketers increased personalisation and relevance, the changes to the platform have backfired spectacularly.
The impact the top one percent of most-followed users - or influencers - can have on social media platforms is not to be sniffed at. It's tricky to quantify Donald Trump's importance to Twitter but he has almost certainly broken the site's usage rules more than once. They simply can't afford to lose a user of that importance.
"Snapchat will continue to face a huge growth barrier in 2018, and Jenner’s comments have added yet another speed bump. The platform can't afford to lose influencers like Jenner especially in a time where influencers are playing such a key role in marketing,” Ben-Itzhak added.
This doesn’t seem to have dented the confidence of Snap’s 27 year old, billionaire CEO however, as Spiegel also told analysts: “This new design is driven by our fundamental belief that separating friends from professional content creators is important to both our mission and the long-term growth of our business.”
“The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both.”
Investors should be concerned though. Snap bent over backwards to protect the voting rights and power of its cofounders, making an investment in the company an investment in the founders vision.The cause for concern here will be that the vision isn't matching up with customer satisfaction, and that Spiegel paid himself $637.8 million last year.
As Rory Cellan-Jones of the BBC said at the time of Jenner’s tweet: "The market just doesn't know what to think of Snap or its Snapchat service. It is either the future of communication - or a social media fad that will last not much longer than one of the messages its army of young users sends.”