Snap Investors Should Be Worried About Executive Turnover

It seems like Snap's (NYSE: SNAP) top-level management hires last only slightly longer than a message sent on Snapchat. Chief Strategy Officer Imran Kahn is just the latest in a string of resignations since the company's IPO last March.

Snap lost its CFO, Drew Vollero, in May, and VP of Product Tom Conrad left in March. Other losses include head of Spectacle Mark Randall, head of sales Jeff Lucas, and VP of engineering Tim Sehn.

That level of turnover is concerning for any company, let alone one that's facing significant competition from one of the biggest companies in the world: Facebook (NASDAQ: FB). The lack of consistent leadership means Snap could struggle in its efforts to out-innovate the competition.

Everyone is leaving Snapchat

The recent string of departures came just as Snap reported a downturn in user numbers for its flagship app, Snapchat. The company told investors that daily active users in March were lower than in January and February, and it reported its first quarterly drop in active users in the second quarter.

A drop in users is exactly when Snap needs someone like Kahn, who's practically in charge of running the business side of things for Snap. CEO Evan Spiegel focuses largely on product, design, and engineering.

Building an ad business on top of a declining user base is a difficult task. Kahn has had nearly four years of experience working at Snap, and he understands the business better than anyone else. That gives him the expertise needed to build an ads business for the company. He's also taken on a wide breadth of responsibilities at the company, including taking the lead, for the most part, on earnings conference calls.

Finding a replacement and getting everyone up to speed following the recent departures, including Kahn, will distract Spiegel and top executives from the important tasks needed to get the user numbers moving in the right direction. So, if the trend continues after Kahn, Snap may continue to struggle with both user growth and its ad business.

Facebook is looming

Facebook has been merciless in its efforts to win Snapchat users and advertisers. The success of Instagram Stories led the company to expand the feature to its other apps, and its user count has since been surpassed by WhatsApp Status. The latter effectively blocks Snap's entrance into emerging markets, an area it long neglected.

Facebook is still in the early stages of monetizing its stories products, but it already has well developed ad platforms and sales teams. As Facebook ramps up ads in Instagram Stories and WhatsApp Status, the challenge only increases for Snap and whomever takes over for Kahn. That may make it difficult for Snap to find someone who's up to the challenge.

As Snap sees high turnover in its leadership, Facebook has been relatively steady. It had a major shakeup in how it structured the organization earlier this year, but it's not seeing a mass exodus of top talent despite significant challenges this year. That may be the most telling indication of how insiders feel about the futures of their respective companies, and investors should certainly put at least some weight into these departures.

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Adam Levy owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.