Snap (NYSE: SNAP) saw a decline in Snapchat users at the end of the first quarter as continued pressure from Facebook's (NASDAQ: FB) Instagram and a bungled app redesign kept users from logging in.
Now Snap is reportedly building a gaming platform inside Snapchat, according to The Information. The platform could feature games that rely on Snap's advanced augmented reality capabilities, and it could present a new source of revenue for Snap outside of advertising. Importantly, games could be a way to draw users back to Snapchat who have moved on to Instagram Stories.
Following in its investors' footsteps
Earlier this year, Snap CEO Evan Spiegel spoke about how Tencent's (NASDAQOTH: TCEHY) WeChat presents a great example of what a chat app can become. Tencent makes a significant amount of revenue from in-game purchases on WeChat. Smartphone games account for nearly 30% of Tencent's revenue, but the company has distribution well beyond WeChat and its other chat app, QQ.
WeChat launched Mini Games at the end of last year, and it's quickly grown the small, fast-loading in-app games. Mini Games don't require users to download yet another app to their phone, and load right in WeChat. There are now over 500 Mini Games available, and nearly half a billion people use them. In the company's fourth-quarter earnings release, it said, "The launch of Mini Games in the end of 2017 gained widespread attention and accelerated adoption among users."
Snap may be hoping for similar results with an in-app gaming platform of its own. It's unclear, though, whether it will be like WeChat's Mini Games or Facebook Messenger's Instant Games.
Facebook couldn't hook gamers
Facebook's efforts on its version of Mini Games actually started about two years ago. It launched Instant Games in Messenger, which enabled users to play games with Facebook friends on Messenger without the need to download the game to their phone. The program remained in beta until this March, when Facebook opened the platform to all game developers.
If you're an avid Messenger users but haven't heard of Instant Games, you're not alone. Facebook has shared very few financial details other than highlighting one game, Basketball FRVR, that's on track to generate over seven figures in ad revenue (i.e., over $1 million). That's practically nothing for Facebook, which generated nearly $12 billion in revenue in the first quarter alone.
Facebook continues to develop the Instant Games platform, but it hasn't been nearly the success for Messenger as Mini Games have been for WeChat.
Snap has everything in place
Snap has slowly rolled out gamified lenses on Snapchat called Snappables over the last few months. Snappables ask users to perform a certain action (e.g., raise your eyebrows) as many times as they can within 10 seconds. Users can then send their scores (and video proof) to friends and challenge them. (They're actually a lot of fun.)
Apparently, Snap has seen enough success with Snappables that it sees room for an entire section of the app dedicated to games. If they expand on the simplicity of Snappables and use Snap's augmented reality capabilities, there's a good chance the company could find success. Snap will reportedly bring in third-party developers to create games, so it might be largely out of its hands. It's just providing the tools.
A game platform could be the next step for Snap to augment Stories and Discover content. It could be the thing that drives users back to Snapchat just as Mini Games have produced increased engagement on WeChat. But there's also the possibility that Snap is building the next Messenger Instant Games.
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