In the first quarter earnings report released this past week, multimedia social app Snapchat (NYSE: SNAP) revealed that it had lost users. Given the collective decline in users across technology platforms, like Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR), many investors are worried that Snapchat is facing a bleak road ahead. The company lost 3 million users, bringing its total user base to 188 million, down from 191 million. This means that Snapchat's user base has shrunk by approximately 2%.
Snapchat CEO Evan Spiegel admitted that modifications in the Snapchat interface have contributed to the decrease in new users. Earlier this year, the company released a redesign that separated personal user-to-user messages from media from celebrities and advertisers. Additionally, Facebook's photo-sharing app and Snapchat competitor, Instagram, added a stories feature similar to Snapchat's, which slowed Snapchat's user growth. Today, Instagram boasts more than a billion users across the world. For Snapchat, the user growth has exponentially decreased in North America, which is the most marketable continent for the company. As of August 2018, North American users are three times numerous than European users. Nevertheless, Snapchat has managed to maintain steady user group outside of North America and Europe, achieving a 65% increase of new users.
In order to extract more revenue from its existing users, Snapchat has incorporated 6-second ads that cannot be skipped. To grab the attention of potential Snapchat users, the company has released new products, including Snap Kits that allow other apps to include features of Snapchat, and the second edition of Spectacles - glasses that give users the ability to snap photos or videos that are sent directly to Snapchat.
Although Snapchat has suffered from its rivalry with Instagram, second-quarter revenue reports show an increase of 44% to $262 million as compared to its revenue from a year ago. Snap also announced a smaller loss of $443 million than a year ago ($353 million). After the report, Snapchat's shares rose by 10% but sunk following Snapchat Chief Financial Officer Tim Stone's refusal to reveal a detailed strategy for growing user membership. It is likely that the slump in users will continue into the third quarter.
Perhaps the most promising advancement for Snapchat is the significant purchase of shares by Saudi Arabian businessmen Prince Alwaleed bin Talal. After the market closed, he announced that he had bought a stake in Snapchat valued at $250 million, approximately 2.3% of the company's shares. Although the deal was created through his private business, Prince Alwaleed bin Talal is the chairman of Kingdom Holdings (TADAWUL: 4280), a firm that owns a significant amount of stock in Twitter and the Four Seasons hotel management company.