Snap needs to win back users fast for its own sake

Snap Inc. (SNAP) reported its third quarter 2018 results almost a month ago, in which the company managed to narrow its loss and grow revenue ahead of expectations. The daily active users (DAU) metric saw growth on a year-over-year basis across all regions but the sequential trend thus far this year paints a different picture.

Snap had 191 million users worldwide in the first quarter of 2018. This number dropped 2% to 188 million in the second quarter and then another 1% to 186 million in the third quarter. Looking at the user count by region, in North America, the number of DAUs has dropped by 1 million each quarter, from 81 million in the first quarter to 80 million in the second and then 79 million in the third.

In Europe, Snap had 62 million users in Q1 2018, which dropped by 1 million to 61 million in Q2 and then by 2 million to 59 million in Q3. For the Rest of the World, the user count was 48 million in the first quarter, which dropped by 1 million to 47 million in the second quarter. This number remained unchanged in the third quarter.

Looking at the trend over the past two years, DAUs have seen healthy growth on a year-over-year basis and have grown consistently on a sequential basis but from the first quarter of this year, they have declined sequentially. Does that mean Snap has lost its edge? Maybe a bit.

Let’s face it, 2018 was not an easy year for Snap, and for social media companies in general. Earlier in the year, Snap lost close to $2 billion from its market cap due to tweets by celebrities like Kylie Jenner and Rihanna, which sent the stock plummeting on two different occasions.

Then came Cambridge Analytica. Although the scandal was directly linked to Snap’s rival Facebook (FB), it brought all social media stocks under the scanner on the issue of data privacy. Snap’s stock took a slight hit at the time.

Then came Snap’s very own mistake in the form of a flawed redesign which led to the company losing users. Another important issue facing Snap is the competition from Facebook’s Instagram division. Instagram, which has reportedly cloned features from Snapchat, is outperforming Snap on those very features. Instagram Stories are enjoying much more popularity than Snapchat Stories.

Snap is facing a lawsuit from a section of shareholders who have accused the company of downplaying its competition with Instagram. The SEC and the Justice Department are said to be enquiring the matter.

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Snap faces a number of challenges ahead. Apart from dealing with litigation, the company has to find an innovative solution that will help it gain back users and also plug losses. With Facebook racing way ahead, Snap has to find a way to bounce back fast.

Snap’s shares have dropped over 56% so far this year and looking at the past one month, the stock has dropped 9%. The stock was down 2.3% as of Friday’s half-day market close.

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