Snap Inc. (NYSE: SNAP) has had a tumultuous few months since its IPO back in March. The company's latest quarterly earnings report showed that daily active user (DAU) growth for its Snapchat app grew by just 4% sequentially, which isn't exactly promising for such a young company.
Additionally, downloads of the app have fallen 22% from the same time last year, according to SensorTower, indicating that the company may be having a hard time getting new users to sign up. All of this has weighed heavily on Snap's share price, which has plummeted about 40% since March.
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But Snap received two boosts of good news recently from new data released by comScore and eMarketer. The former said that Snapchat is the third most popular social app among 18 to 24 year-olds, behind YouTube and Facebook's (NASDAQ: FB) app. While the latter said that Snapchat will be bigger than Facebook and Instagram among 12- to 17- year-olds and 18- to 24- year-olds by the end of this year.
The good news
eMarketer's data shows that Snapchat will have more users age 12 to 24 than Facebook and Instagram by sometime this year. The app clearly won't surpass Facebook or Instagram in total users, but it does show that Snapchat is still very appealing to one of the most important advertising demographics.
eMarketer expects Snapchat user growth to jump 19.2% this year among younger users and, at the same time, Facebook will continually fall out of favor among younger social media users (some of whom don't even have a Facebook account).
The latest comScore data appears to confirm Snapchat's popularity among 18- to 24-year-olds, and places the app's usage ahead of Instagram and Facebook Messenger in that age demographic.
The comScore data should be a welcome sight for Snap investors and if the eMarketer projections pan out then Snap investors may finally have something to celebrate later this year. But despite the positive news there are still a few good reasons why Snap investors -- or those thinking about investing in the company -- should remain cautious.
What investors should still be concerned about
I already mentioned that Snap's DAUs grew modestly in the second quarter and that its app downloads have slowed by more than 20%. But investors should also be concerned that Snap may be having a hard time retaining advertisers.
CNBC reported earlier this month that interest among advertisers is "flat to dwindling" and that ad companies are focusing more of their attention on Instagram. One major problem for Snap is that Instragram essentially copied Snapchat's Stories feature and added it to its own app, which has proven very popular among Instagram users.
Nearly all of Snap's revenue comes from advertising and if advertisers can reach more people on Instagram (which they can) -- and deliver a similar ad experience as on Snapchat -- then there's little incentive to advertise on both platforms.
Snap Inc. is still a young company and it's possible that its popularity among younger social media users could eventually bring significant revenue and profits. The two reports from eMarketer and comScore should certainly be encouraging for Snap investors, but the company really needs to deliver on its potential. At this stage of the game Snap should be adding users hand-over-fist and garnering sustained attention from advertisers. Current investors should continue to watch for more user growth -- and if it brings significant revenue growth along with it -- and wait to see if Snap can actually deliver on some of the positive news these reports are projecting before they get too excited.
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