As it struggles to meet much-lowered projections for growth, Snapchat has decided to take the drastic measure of redesigning its app.
According to news from Bloomberg, Snap’s ad prices fell during a transition in the company’s sales system. Yet the bigger issue for the company is that users frequently complain that they don’t know how to use its mobile messaging app, hence the planned redesign.
“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application,” CEO Evan Spiegel said in prepared remarks to investors. “We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
Despite the redesign, Spiegel said that the intimate nature of Snapchat – conversations between close friends – will remain. But a new algorithm will also enable users to see content from those who aren’t their friends, which will help Snap and its media partners make more money from ads on curated content.
The company revealed a third-quarter revenue of $207.9 million, falling short of the $235.5 million analysts predicted. Daily users averaged 178 million, less than the estimated 180.5 million. Shares tumbled as much as 22 percent in extended trading.
Sales estimates for Snap have been declining since its initial public offering in March, and shares have dropped more than 10 percent since the IPO.
One issue is that advertisers have been slow to understand how Snapchat works. It doesn’t operate like a social network, such as Facebook – there is no sharing, liking or commenting on people’s posts, and no news feed, while the content from friends is displayed separately from professionally produced news from media organizations.
In addition, Facebook has been replicating some of Snap’s best product ideas. For example, Snap has a way for people to submit videos throughout their day to create “stories” of their lives, which disappear 24 hours after they’re posted. Facebook’s similar product for Instagram, also called “stories,” and for WhatsApp, called “status,” each have more than 300 daily active users.
And another business arm, Spectacles, is also not faring well. The sunglasses that film people’s experiences debuted to a lot of fanfare, and a result, Snap ordered too many. Now, the company said it’s taking a $39.9 million write-down on all the inventory it is unlikely to sell.