Snap Inc. SNAP announced that it is revamping its messaging application, Snapchat by separating posts made by friends and the ones made by publishers in an attempt to make the platform more user-friendly.
Per the blog post, the right side of the app will have the Discover page covering Stories posted by brands and advertisers while the left side will feature a new page called “Friends” containing chats and Stories by friends.
The company uses what it calls “Best Friend algorithm” to sort “most talked to” friends to make conversations with them easier and simpler.
The Discover page will feature subscriptions made by users at the top, followed by the Stories, personalized algorithmically, that they might be interested in viewing. The company claims that the Stories are continuously reviewed by its teams before promoting them on the platform.
Per TechCrunch, the updated app will be rolled out to some of the users on Apple’s AAPL iOS and Alphabet’s GOOGL Android devices on Friday and eventually to all users within a few weeks.
Redesign to Aid Growth?
Snap has been facing decelerating growth in user base as well as advertising revenues in the last few quarters. Over the years, Snapchat has faced severe criticism for its difficult to use and understand platform. Management noted that the application’s need for affordable high-speed Internet connectivity has emerged as a barrier to growth in the rest of the world market.
Notably, shares of Snap have lost 44.1% since its listing date of Mar 2, 2017 against 23.7% growth of its industry.
Plans to redesign the app were announced by CEO Evan Spiegel on the last conference call. He mentioned that given the uncertainty surrounding the app’s adoption, it is likely that the redesign will prove to be a headwind for the business in the short run. However, he believes that the redesign will have “substantial long-term benefits” and therefore the risk is worth taking.
The CEO also mentioned on the call that in order to attract more Android users, it is building a new version of its Android app that will initially be rolled out in certain markets.
Spiegel was quoted saying, “We are developing a new solution that provides each of our 178 million daily active users with their own stories experience, leveraging the tremendous benefits of machine learning without compromising the editorial integrity of the Stories platform that we have worked so hard to build.”
Snap reported that it has been able to reduce the time taken to open the camera app by Android users by over 20% since April. In the last reported quarter, the monthly crash rates for the application recorded an all-time low across both iOS and Android devices.
We know that too many ads on a platform sometimes irritate users and lead to a drop in user engagement. The company’s decision to redesign the application taking into account all such factors as well as the technical glitches are expected to boost its user base.
Impact on Advertisement
Some analysts believe that it might have a negative impact on advertisers as the brands prefer to promote products alongside the main contents so as to garner more views. Keeping the section separate from the social page might affect visibility of some ads and thus is a concern for a company that depends entirely on advertising revenues.
Per eMarketer, in fiscal 2016, advertising revenues from the Discover section accounted for nearly half of Snapchat’s total revenues. In January, the firm predicted Snapchat’s advertising revenues from Discover to increase 62.3% year over year to $243.2 million (30.2% of total) in 2017. Snapchat’s Stories section (37.8%) was predicted to outperform the Discover section this year.
However, the firm slashed the 2017 U.S. ad revenue estimates for the company twice after that. In March this year, the research firm had slashed its forecast from $805 million to $770 million. Again in October, it brought it down to $642.5 million.
This is a severe concern given the kind of competition that its faces from giants like Facebook FB and its photo-sharing app Instagram, which is almost a copy of Snapchat.
Zacks Rank
Snap has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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