Few companies have as interesting a story to tell as Snap Inc (NYSE:SNAP); after having one of the biggest IPOs in years, the company has faced loss after loss in the marketplace, consistently facing revenue losses and plunging share prices as its competitors swooped in to adopt its best ideas for themselves. After another recent brutal loss, highlighted by a third quarter earnings report, outside investors from China may end up being Snap’s sole lifeline in an increasingly hostile market.
So what exactly are Snap’s chance for future success, and how major of a development is the recent Chinese acquisition of some 12% of its shares? A review of the situation as it is today shows that Snap’s days are far from over, but the company has a long, winding road ahead of it if it hopes to dig itself out of its current rut.
Tencent dives in
Perhaps the most important thing that’s happened to Snap thus far this year is the 12% stake the Chinese tech giant Tencent recently took out in it. The massive deal, worth some $2 billion, could be the financial capital Snap desperately needs to refine its business model to lure in more daily users. Currently, the company’s consistent losses and flagging user base is beginning to cost it serious advertising revenue, which in turn has many of its current investors worried their dollars may be going to waste on a company on its way out.
Dealing with lower average revenues per user than expected, not to mention the missing its expected user levels by a few million, has the company scrambling to refine its image. Snap’s future ambitions are thus largely pinned on its current algorithmic revolution, which it hopes will encourage more consistent viewing which will entice more advertisers to its platform.
With more outside investors like Tencent scooping up portions of the company, such redefining moves could become Snap’s new norm. Investors are eager to see something, anything being done about the constant bad news being delivered to the trading floor, meaning staff shakeups and new content ideas should be expected in the coming months. The market clearly hasn’t abandoned Snap yet; the company’s trading volume recently reached the highest level since the day it went public, signaling that investors are anything but through with it.
While Snapchat remains extraordinarily popular among millennials, its target market, it’s still incapable of preventing its competitors from poaching away its best ideas, taking a healthy chunk of its userbase along with them. Social media companies like Instagram and even the Chinese Bitcoin Bot Pro have shown they’re prepared to copy some of Snap’s most popular ideas, such as when Instagram adopted its own stories function into its services. For Snap to turn its current fate around, it needs to do more to protect its intellectual property, and retain its die-hard users who generate the most revenue.
Don’t count on divine intervention
Foreign investors won’t be able to keep Snap propped up in the market if its incapable of treading water on its own, however. Snap’s consumer base is mostly American, and the majority of its problems stem not from a lack of access to capital, but from innovative stagnation that seems to have taken hold of the company as of late. Plenty of new ideas have been put to the test, of course, but paltry few of them have passed.
If Snap hopes to turn its market fortunes around, it’ll need to do more to woe back the bread and butter of its industry, the advertisers who keep it alive. More engaging content, specifically video content that lures in user’s eyeballs and gets them focused on revenue-generating ads, needs to be created it Snap hopes to avoid being consumed by any of its many competitors.
Snap’s consistent loss of market share to its competitors like Instagram can only be halted if it makes itself more appealing to younger audiences through such content. Investors may concern themselves with financial losses or flagging revenue figures, but the truth is that these numbers are mere byproducts of the attention-grabbing ads and content featured on Snap user’s phones each day. Without better content, Snap’s shares won’t be skyrocketing anytime soon.