Challenges on the inside and the outside: Snapchat fights to keep users

Snapchat's latest results show a decline in daily user numbers. The most likely explanation is a combination of the ill-fated launch of a new interface in Q1 and competition from Instagram.

When we last looked at Snapchat’s performance in Q1, our data suggested that the negative impact of the new app release in February had left users feeling ‘disillusioned and consequently more disengaged’. The company itself saw the potential for disruption and the Q1 results were accompanied by a warning that growth in daily user numbers (DAUs) and revenue could be hit in subsequent quarters.

Well, the results for Q2 are out and we now know that Snapchat managed to head-off the threat to revenue by boosting advertising income. The news on user numbers was less positive, with a 2% slide in DAUs from the first quarter.

It seems that the dissatisfaction expressed by users in Q1 took time to feed through to the company’s overall DAU performance. During its latest earnings call, Snapchat’s management said that some of the daily users lost during the second quarter still retain an account. This chimes with our conclusion in May that ‘the people are still there, but they are demotivated’.

The wounds Snapchat suffered in the first quarter were largely self-inflicted. But in Q2, the landscape has changed and we need to factor in the activities of Snapchat’s competitors. Instagram has been pushing hardest to exploit the dissatisfaction of Snapchat users by incorporating some of Snap’s best features into its own app.

In Fig 1 we can see how Snapchat users made more references to Instagram throughout the second quarter. As Instagram made improvements to its own service, Snapchat users responded with more interest. The fact that Instagram was becoming more front of mind for Snapchat users should have set the alarm bells ringing for DAU numbers in Q2.

 

 

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