In Snap's (NYSE: SNAP) first-quarter earnings call, its first as a public company, CEO Evan Spiegel briefly mentioned the company's priorities: performance, quality, and automation. The mention was so brief, in fact, that it wasn't exactly clear those were company priorities until Spiegel said so on the company's third-quarter call. He's still working on his communication skills, though.
During the third-quarter call, Spiegel also laid out Snap's priorities for 2018: user growth, content, and augmented reality. All three either have room for improvement or big opportunities (or both). Let's dive into Spiegel's comments, and see what investors can expect from Snap in 2018.
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To say Snapchat's user growth has been disappointing in 2017 may be an understatement. Snapchat added just 20 million daily active users since the end of last year, slowing to just 4.5 million net additions in the third quarter. For reference, Facebook's (NASDAQ: FB) Instagram has added about 100 million daily users since the beginning of the year.
Spiegel says growing users will require Snapchat to reach people outside its core audience of teen users in developed markets. "We need to accelerate the adoption of our product among Android users, users above the age of 34, and users in the Rest of World markets," he said during the third-quarter earnings call.
To that end, the company is rebuilding its Android app to make it faster and better for people with poor internet connections. It's also completely redesigning the app in an effort to make it easier to use.
"There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term," Spiegel warned. Overall, he believes it'll be best for long-term growth. Facebook has made similar decisions to support long-term growth, but it's never faced the severe slowdown in user growth that Snap is facing.
As part of the app redesign, Snapchat will introduce a new way for users to discover content on the platform more easily. It will rely on machine learning algorithms to present content Snap believes users will find interesting based on the content they currently watch on Snapchat.
Snapchat has added several new ways to discover content this year already. It made Stories searchable, so users can find Stories about topics that interest them. It also rolled out Snap Maps this summer, to make it easy to find snaps based on location. Snap will roll all of these into a feed of stories for users to consume passively. Spiegel hopes "showing the right Stories to the right audience will help grow engagement and monetization for our partners and for Snapchat."
Additionally, Snapchat plans to build more distribution and monetization opportunities for creators with dedicated audiences on Snapchat. That could encourage a broader group of content creators to make content for Snapchat, potentially taking part in an ad revenue share agreement with Snap. Facebook is working on a similar business model with its Watch platform and new midroll video ad format.
Snap has been a leader in augmented reality for some time, developing "Lenses" that overlay graphics on objects or users' faces within Snapchat.
Next year, Snap will aim to leverage its community to make even more Lenses. It's developing a Lens Studio that will enable anyone to create and publish a new Lens. Snap ran a similar program with its simpler geofilter graphic overlays, and users created over 5 million new geofilters for the company over the last two years.
Snap also plans to expand on its recently released Context Cards by adding new partners to the platform. The feature is currently only available in select locations and only works with a few businesses.
It all boils down to one thing
Snap's success in each of these priorities seems to mostly boil down to the company's forthcoming app redesign. Spiegel felt the need to warn investors that the redesign could cause short-term pain for the company, indicating he's not completely confident the transition will go smoothly. Any major changes have the potential to cause Snapchat's dedicated teen user base (which spend over 40 minutes per day in the app, on average) to flee the app for the more familiar Instagram.
Snap will have to tread lightly as it rolls out the major changes, especially considering the significant slowdown in user growth already. Investors should pay close attention to progress on the redesign, but don't expect management to be very forthcoming with details before it's launched. Spiegel refused to provide a timeline for the relaunch.
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